FNS400: Management of Financial Resources

FNS400 Final

Users of financial information

• owners

  • want to know what is happening with their investment

• board of directors

  • purpose is to oversee the operation of the operation and make decisions for the organization

• managers

  • assessing the daily activities and operations of the business

  • determining the success of the operation to evaluate plans

• creditors

  • want to ensure that financial obligations are met

• employees

  • want to ensure that the business can continue to pau them wages

• government agencies

  • want to ensure that there are taxes and regulations being followed

• financial analysts

  • want to know about a business for their own or for a clients information

Not for profits

• operations are not using the revenues to support anyones financial gain

• any revenues are put back into the business

• suppliers want to ensure that the business can pay their bills

• the customers are an additional user because they want to ensure that the cost of services can be kept as low as possible

systems approach to financial resources

• inputs are money

• output is financial accountability

Auditing

• accounting concerned with independent reviews of accounting recoreds

• supports financial reports and formulation of an opinion of the fairness and reliability of reports

Cost accounting

• determination and control of costs

• focus on assembling and interpreting cost data for management to use to control current operations and planning for future

• emphasis on distribution cost

• service costs, production costs

Financial accounting

• concerned with the reportnig of transactions for an organization and the periodic preparation of various reports from these records

• income statements, balance sheets etc

Managerial accounting

• focus on creating reports and documents to aid managers in decision making

• identifying the costs of alternative actions and in planning future operations

Business entity concept

• a business is separate from the individual or individuals who supply its ssets

• only resources that are set aside specifically for the business are included in financial reporting accounts

Fundamental equation

• resources, debts and ownership interest of an organization

• Assets, liabilities and owners equity

• assets = liabilities + owners equity

Going concern concept

• the idea that a business will continue ot operate in the future

• implies that the value of assets is its availability to generate revenue rather than the value they would bring in liquidation

money is unit for measure

• all transactions are in dollar amounts

• other informatino like the value of good employees cannot be included if it cannot be quantified

cost principle

• recording transactions and assets in terms of dollars at the time of the transaction

cash vs accural bases

• cash: recognizes a transaction at the time of cashflow

• accural: recognizes revenues when earned regardless of when the cash is recieved and expenses when occured no matter when the cash is dispersed

matching revenues and expenses

• match revenues with teh expenses during the accounting period to avoid an imbalance in expenses or revenues

depreciation

• costs associated with the acquisition and installation of a fixed asset are allocatd over the estimate duseful life

• cost of the asset - salvage value / years of life

adequate disclosure

• financial statements should contain full information that is required for readers to understand the financial statement

consistancy principle

• once an organization chooses an accounting method they must continue to use it from one perod to another to ensure that there is comparable financial data in the buisness

balance sheet

• statement of assets liabilities and equity of a business

• given at the end of an accounting period

income statement

• financial report that shows the net income or profit of an organization for the oaccounting period

• revenues and expenses that resulted from the net income or loss

• this is a flow or dynamic statement

assets

• resources of a company that can be fixed or static

• current assets: cash and all assets that can be converted into cash in a short time period

• fixed or long term assets: acquired to generate revenues for the business

  • generally loose value over time

  • reduce by accumulated depreciation over time

Liabilities

• what the business owes

• Current: will be paid within a year

• accrued are those not paid at the end of the period

• long term: obligations that will not be paid over the current year

  • mortgage etc

  • all payments that are goign to be made that year are moved into current liabilities for that month

Owners equity

• portion of the business that is the ownership interest along with earnign retained in the business from operations

Break even analysis

• looking at the point at which you are making no profit but also incurring no loss

Fixed costs

• the costs of a business that do not change with an increase or decrease in sales

• these are required even with no sales (rent, insurance)

Variable costs

• costs that change depending on the sales of a buisness

  • materials or food costs

semivariable cost

• ones that wil not change entirely with sales

  • labour, utilities, maintenance

contribution margin

• proportion of sales that can contribute to fixed cost or profit after variable costs have been covered

Budget

• plan for operating a business in financial terms or a plan to control expenses and profit in relation to sales

• involves the use of budget and performance reports thrgouhout the planned period to coordinate

• organized procedure for planning and developing standards from a numerical standpoint

Operating budget

• sales and revenue portion

• internal and external controls

  • past performance

  • performance of similar businesses etc

• changes in prices shoudl be considered

• consider the expendatures such as labour, products, changes in food prices

Capital budget

• completed at the same times as the operaiting budget

• for expansion, improvement, replacements in equipment, land etc

• prorated over several budget periods often

Cash budget

• estimate of cash receipts and disbursements throughout the budget period

• cash in and outflow of the business

Proforma statement

• composite of sales and expenditure budgets includign projection for profit

• various ratios to determine if the appropriate ratio of expenses to revenue has been determined

Menu pricing

• determined by evaluating cost of ingredients, labour and comparing to other businesses

Factor pricing

• multiply the cost of food by the amount of profit that you want to make and that will set the price

• this does not consider anythign other than the cost of food

Prime costing method

• raw food and labour costs involved

• assumptions are made on the percent of prie cost attributed to each individual thing

actual cost

• establish the food cost from standardized recipes

• consider variable costs, fixed costs and profits that can be obtained as a % of sales from the profit and los statement

• this takes time to collect all the accurate and required data to make decisions

two tier foodservice

• used in healthcare

• upscale amenities for patients who want to pau for special food

a la carte menu

• has menu items individually priced and they cna be selected by the customers

table d’hote

• groups several items together at a set price that customers can select

labour costs

• usually the most expensive part of operations

• simplifying work can reduce this cost

Unique characteristics of foodservice industry

• 7 days a work and some may need staff 24 hours a day

• peaks in demand require more staff at certain times

• seasonal variation in patrons of establishments

• parishible nature of food

• labour intensive for production

• large number of unskilled laboru required

Ways to manage labour costs

• cross train employees

• conduct productivity audits

• monitor clocking in and out of work to ensure that people are working the right amount of hours

• develop schedules to adjust to changes in the number of customers

• technology to reduce the amount of labour needed

• evaluate menu to redcuce the number of complex menu items in a restaurant

Food costs

• second most expensive

• monitor costs on routine

• conduct inventories

• follow FIFO

• assure that standard recipes are followed to reduce food costs and waste

• review food purchasing to make sure that the right products are bought at the right price

• track foodwaste

Cash handling

• must have sound cash handling practices in place

• paper and coin currency as well as checks and credit/debit transactions