PATHWAY TO OTHM LEVEL 5 EXTENDED DIPLOMA IN TOURISM AND HOSPITALITY MANAGEMENT MANAGEMENT ACCOUNTING K/650/1207
LEARNING OUTCOME 1 • Know about the context and purpose of finance and accounting in the tourism and hospitality industry.
• 1.1 Explain the importance of finance and accounting in the context of a tourism or hospitality organisation. • 1.2 Explain the regulatory and legal influences on a tourism or hospitality business’s finance and accounting function. • 1.3 Explain how the finance and accounting function supports a tourism or hospitality business’s decision making.
1.1 Explain the importance of finance and accounting in the context of a tourism or hospitality organisation.
• Accounting plays an essential role in the success of achieving business organization goals. Accounting is recognized as being able to provide • Accurate records of all organizational financial transactions over a specified period;
• Accurate records of the value of products sold to consumers and the value of goods obtained from suppliers;
• Information that are relevant to management in order to improve the financial performance of the organization; • Valuable information for many external users, such as potential investors, creditors, banks, and the other • In the context of the tourism industry's business operations, accounting not only traditionally plays a role in determining costs and internal revenues but also necessarily produces financial information that focuses on aspects of strategic planning that are external in terms
• Hospitality accounting involves around various facets and compilations of the financial statements. Hotels practicing a systematic maintenance of financial records will enable the hotelier to plan on budgets and save money for business expansions. • Accounting in hospitality industry provides financial data with a realtime view of the cash flow, accounts receivable, accounts payable, etc.
• Data entry process is simple and easy to update online. Ample data storage makes it easy for specific users to share information. • Accounting software makes it easy and works at a faster speed compared to manual methods. Increase the efficiency of tasks as well
1.2 Explain the regulatory and legal influences on a tourism or hospitality business’s finance and accounting function • International consistency in accounting and auditing standards has become the demand of the global financial markets. International Financial Reporting Standards (IFRS) is a set of Accounting Standards (AS), developed by the International Accounting Standards Board (IASB), which is becoming the global standard for the preparation of public company financial statements. With this, several countries have started adopting the IFRS, while others base their local standards on the IFRS.
• The trend towards these international standards is evidently growing and is expected to result in greater comparability and disclosure of information. The transition though does not merely encompass the change of accounting procedures. Companies, especially those in the Hospitality and Tourism sectors will have to undergo extensive change and risk management to facilitate adoption. Also, there remain issues concerning the complexities of the IFRS requirements, in terms of measurement and accounting as well as the amount of information to be disclosed. Such areas of concern are yet to be fully resolved as continuous efforts are being made to resolve the conflicts and contradictions.
1.3 Explain how the finance and accounting function supports a tourism or hospitality business’s decision making
• Tourism finance decisions are the processes involved in the responsible choices that relates to looking for potential investment alternatives that tourism organizations think; identifying financing options through borrowing (i.e., debt) and inviting investors (i.e., equity); and in minimizing the cost of financing, that is, looking for lower interest rates, and reducing the amount of cash dividends given, and instead going for stock dividends for high growth tourism projects
• Tourism finance is an area of finance dealing with managing the sources of finance and investments to maintain the financial sustainability of organizations involved in the Travel and Tourism Sector.The primary goal of tourism finance is to set criteria in which value-adding tourism projects should receive investment funding.
• It evaluates a tourism organization’s financial needs and raise the appropriate type of capital (i.e., debt and/or equity) that best fits those needs, rather than corporations alone, this relatively new field of study may also be also applicable to non-profit organizations and government that encounter financial problems related to the Travel and Tourism Sector
• Invesment decisions of Tourism Financial Managers can be classified into two major groups of choices • Long-term investment decisions refer to capital budgeting related to travel and tourism fixed assets expenditure, wherein the financial manager must identify and recognize the expected benefit of different tourism projects received over a long period of time, or any tourism projects exceeding one fiscal yea
• Short-term investment decisions relate to working capital management or the financing of current assets. Financial managers need to allocate cash and equivalents, and manage receivables and inventories on a daily basis. Tourism firms, especially related to services has fast turnover with high liquidity asset. • Investments in tourism-related businesses vary on the size of investments, and the level of decision-making; they can be clasified into
• Low-level or store level investments - This level of investment decisions are mostly handled by store managers. These includes the creation of new suitable units for inventories like shelves or tables for inventories; purchasing of equipment like tshirt printing; buying new vehicle for company tours; and deciding the product/service range that should be offered in the store
• High level (Supervior level) - This level of investment decisions are mostly related to expanding the business by opening new stores in new market, new area; closing or continuing investing for expansion of current stores; purchasing, merging or acquiring other related business to support the firms development; and spending in the research and development for new products and services
Suggestive Readings • https://www.aaconsultancy.ae/ • https://www.atlantispress.com/article/125924371.pdf • https://www.researchgate.net/publication/346 109217_Tourism_Finance_Investing_and_Finan cing_in_Sustainable_Tourism • http://www.iupindia.in/default.asp
LEARNING OUTCOME 2 • Be able to prepare financial statements for different types of businesses
• 2.1 Differentiate between different financial statements. • 2.2 Prepare financial statements for a sole trader. • 2.3 Prepare financial statements for a partnership. • 2.4 Apply techniques to make adjustments to financial statements
➢Balance Sheet
2.1 Differentiate between different financial statements
• Finance people often use phrases such as “statement of financial position” and “report on financial condition” when referring to a balance sheet. This report provides a glimpse into a company’s economic resources, liabilities and equity items. Reviewing a balance sheet enables investors to answer key questions about corporate liquidity and solvency. Liquidity is a mark of a profitable activity that generates more cash than it spends. A solvent initiative or company is one that holds more assets -- the other name for economic resources -- than debts.
➢ Income Statement • Securities-exchange players -- those who buy and sell stocks and bonds on markets such as the New York Stock Exchange -- pay attention to an entity’s income statement to figure out specific ways top leadership is addressing the profitability question. Things they watch closely include policies to grow sales, blueprints to maintain or expand market share and tactics to reduce expenses and rein in waste over time. Financial specialists often refer to an income statement as a statement of profit and loss, report on income or P&L. This financial data summary consists of revenue, expenses and net income -- or loss, if expenses are greater than revenue items.
➢Statement of Cash Flows • Business reporters often describe a negative statement of cash flows as a symptom of institutional dysfunction, touting the report as proof that corporate management is not effectively managing company money. You can see signs of poor or inefficient money management by delving into the three sections making up a liquidity report: cash flow from operating, investing and financing activities. Regulatory guidelines require this precise classification to lift the veil on things such as liquidity management, profitability, investment management and expense reduction. In a financial lexicon, the terms “statement of cash flows,” “liquidity report” and “cash flow statement” are interchangeable.
➢ Equity Statement • An equity statement showcases which investor group plays a central role in fighting the fundraising problem a business is facing. In the report, you see elements such as common stockholders and preferred stockholders. Common stockholders receive periodic dividends, can vote on important company matters and make money when share prices go up. Preferred shareholders -- the other name for stockholders -- typically hold the same advantages as common stockholders but have higher priority in dividend distributions.
2.2 Prepare financial statements for a sole trader
• The objective of the business is to make a profit. The statement of profit or loss is prepared for the accounting period at the end of the period, to determine the profit or loss made by the enterprise during that period. It is prepared on the principle of the Accruals or matching concept.The first section of the statement of profit or loss is for the trader, this will reflect the GROSS PROFIT made ontrading. In this section of the statement of profit or loss the selling price is matched against the cost price. • Net Sales – Cost of Goods Sold = Gross ProfiT
Trading and P&L account
Balance Sheet • https://businessjargons.com
➢THE STATEMENT OF FINANCIAL POSITION/BALANCE SHEET • The statement of financial position/balance sheet shows the assets and liabilities of an enterprise at a particular date. The statement of profit or loss is for a particular period where as the statement of financial position is at a particular date. It is in this statement that the assets, liabilities and equity are maintained
Based on the IAS assets are classified under two broad headings: • Non Current Assets • Current Assets • Non Current Assets-can be defined as assets which are expected to remain in the business for over one accounting year. In other words these assets were acquired for long term use and not for trading. Non-current assets may include tangible and intangible assets. • Examples: Land and Building, Machinery and equipment, Furniture and Fittings, Copy rights and Motor Vehicles
Current Asset • An asset should be classified as a current asset when it: • a) Is expected to be realized in, or is held for sale or consumption in the normal course of the enterprise’s operating cycle; or • b) is held primarily for trading purposes or for the short term and expected to be realized within twelve months of the statement of financial position date; or • c) is cash or a cash equivalent asset which is not restricted in its use.
• All other assets should be classified as noncurrent assets • Examples include: inventory, trade receivables/debtors, and cash in hand and at bank, prepaid expenses. • All assets are generally arranged in order of permanence of liquidity; starting with the most permanent or least liquid down to the least permanent of the most liquid.
• Liabilities on the Statement of Financial PositionLiabilities are classified on the statement of financial position under two broad headings also: • Current liabilities • Non Current liabilities This Photo by Unknown author is licensed under CC BY-SA.
Current liability• A liability should be classified as a current liability when it: • a) Is expected to settled in the normal course of enterprise’s operating cycle; • b) Is due to be settled within twelve months of the statement of financial position dateAll other liabilities should be classified as non-current liabilities. Examples include: bank overdrafts, trade accounts payable/creditors, income taxes, and accrued expenses
Non-Current liability • Non-current liabilities can be defined as liabilities which are expected to be settled after more than accounting year. Examples include: Loans, mortgages and debentures
Owner’ Equity • This section of the statement of financial position shows the amount that can be claimed by the owner of the business. It consists of the capital invested plus the amount of net profit or loss, less any amount for drawings. Alternatively, it is the net difference between the assets and the liabilities.
• https://businessjargons.com/
2.3 Prepare financial statements for a partnership
• Financial statements are prepared for partnerships the same way as they are for limited liability companies. For partnerships, the balance sheets are usually prepared with the cash and equivalents at the beginning, followed by the current and fixed assets and then liabilities.
• The assets and liabilities on the partnership income statement are similar in structure and placement with other types of businesses, although there is a difference in owner equity entries. These are allocated to each partner according to the earnings allocation approach used by the organization. The changes are compiled in the statement of the partner's equity. • After the fiscal period, the fractional ownership interest of each partner is recalculated according to their contributions during the fiscal year. Limited liability companies do not have this element in their financial statements
➢ Statement of Partners' Equity • The statement of partners' equity is a report that illustrates the adjustments in the total partners' capital accounts during an accounting period. It illustrates increases and decreases within the accounts over the financial period. • The statement of partners' equity only lists transactions affecting the equity accounts. It uses net income or contributions during the fiscal year to ascertain the ending balance. The equity equation for these statements can be denoted as: • Beginning capital balance + net income + contributions – (net loss + distributions)
• The result is the ending capital balance.
➢ Determining the Starting Balance • The starting balance is most often derived from the ending balance on the capital account from the previous year. Should it be the business's first year, then the beginning balance is the partner contribution. After the first fiscal period, the ending balance is carried to the next season and becomes the future starting balance of the equity account. A partnership can have a single capital account for all involved partners with a supporting schedule that allows for the breakdown of the capital account for each party.
➢Maintaining Capital Accounts • It is easier to maintain separate capital accounts to avoid unnecessary friction. It makes it simpler to assess the amount to be distributed to each partner should there be liquidation or the departure of a partner. It also reduces the complexity in discussions over remuneration and liabilities among the partners. The payment given to a partner upon the liquidation of the business may not equal the balance in the partnership capital before the split. • When assets are sold and the liabilities are dealt with, their market values may affect the overall ratio of the distribution.
➢ Retained Earnings • For partnerships, the retained earnings are about keeping the income within the business account rather than collecting them for personal use at the end of the financial period. A partnership may choose to retain profits to improve the levels of cash flow or to reinvest in future projects for the benefit of the company. Profits may even be used as collateral for a loan application. The decision on whether the partnership should have retained earnings has no tax-related consequences because the owners of the partnership are taxed using individual income tax rates on their gains regardless of whether they withdraw the earnings or keep them.
2.4 Apply techniques to make adjustments to financial statements ➢Closing Stock: • The number of goods that remain unsold at the end of the financial year is called closing stock. It is valued at cost price or market price whichever is less. • Journal Entry:
• Adjustment • If Closing Stock is given outside the trial balance: Usually closing stock is given outside the trial balance. In such case, two entries are passed• In the Cr. side of the Trading A/c. • In the Assets side of the Balance Sheet. • If Closing Stock is given inside the trial balance: If Closing Stock is given in the trial balance then it will be recorded only once in the Assets side of the Balance Sheet.
➢ Outstanding Expenses: • Outstanding expenses are those expenses that are related to the same accounting period of which accounts are being made but are not yet paid. • Journal Entry:
• Adjustment: • If Outstanding Expense is given outside the trial balance: In such case, two entries will be passed• Will be added in the concerned item (expense) at the Dr. side of Trading A/c or Profit & Loss A/c. • Will be shown in the liabilities side of the balance sheet.
• If Outstanding Expense is given inside the trial balance: It will be only shown on the liabilities side of the Balance Sheet. (Because it is a Representative Personal A/c which has a Cr. balance)
➢ Prepaid Expenses:
• Such expenses which are concerned with the next financial year but have been paid in the current year are called prepaid expenses. •
Journal Entry:
• Adjustment: • If Prepaid Expenses is given outside the trial balance: In such, case two entries will be passed• Will be deducted from the related Expenses A/c in the Dr. side of the Trading A/c or Profit & Loss A/c • Will be shown in the Assets side of the Balance Sheet ( Because it is a Representative Personal A/c the benefit of which will be received in the next year) • If Prepaid Expenses is given inside the trial balance: It will only be shown in the Assets side of the Balance Sheet. (Because it is a Representative Personal A/c and has a Dr. balance)
➢ Accrued Income:
• Such an income that has been earned but not yet received in the current financial year is called Accrued Income. •
Journal Entry:
• Adjustment: • If Accrued Income is given outside the trial balance: In such case, two entries will be passed• Will be added to the related Income A/c in the Cr. side of Profit & Loss A/c. • Will be shown in the Assets side of the Balance Sheet or added to the concerned source in the Assets side of the Balance Sheet. • If Accrued Income is given inside the trial balance: It will only be shown on the Assets side of the Balance Sheet.
➢Unearned Income:
• Such an income that has not been earned as yet but has been received in advance is called Unearned Income. • Journal Entry
• Adjustment:
• If Unearned Income is given outside the trial balance: In such cases, two entries will be passed• Will be deducted from the related Income A/c in the Cr. side of the Profit & Loss A/c • Will be shown in the Liabilities side of the Balance Sheet. • If Unearned Income is given inside the trial balance: It will only be shown in the Liabilities side of the Balance Sheet.
➢Interest on Capital: • Sometimes there is a provision of interest being given on the capital brought in by the proprietor or partners. Interest on Capital is a loss to the business while profit for the proprietor. • Journal Entry:
• Adjustment: • If Interest on Capital is given outside the trial balance: In such case, two entries will be passed• It is shown in the Dr. side of the Profit & Loss A/c. • Amount of Interest on Capital is added to the Capital A/c in the Liabilities side of the Balance Sheet. • If Interest on Capital is given inside the trial balance: It will only be shown in the Dr. side of the Profit & Loss A/c.
➢ Interest on Drawings: • Money or Goods withdrawn by the proprietor from the business for personal use is called drawings. Drawings are a sort of loan taken by the proprietor from the business. Sometimes proprietor has to pay interest on his drawings which is called Interest on Drawings. •
Journal Entry:
• Adjustment:
• If Interest on Drawings is given outside the trial balance: In such case, two entries will be passed• It is shown in the Cr. side of the Profit & Loss A/c. (It is a kind of income for the business) • Amount of Interest on Drawings is added to the Drawings A/c and deducted from the Capital A/c in the Liabilities side of the Balance Sheet. • If Interest on Drawings is given Inside the trial balance: It will only be shown in the Cr. side of the Profit & Loss A/c.
➢ Interest on Deposits:
• The interest received on the amount deposited in the Bank is called Interest on Deposits. It is an income for the firm. •
Journal Entry:
• Adjustment: • If Interest on Deposits is given outside the trial balance: In such case, two entries will be passed• It is shown in the Cr. side of the Profit & Loss A/c. (It is income for the business) • Amount of Interest on Deposits is added to the Bank Deposits in the Assets side of the Balance Sheet. • If Interest on Deposits is given Inside the trial balance: It will only be shown in the Cr. side of the Profit & Loss A/c.
➢ Interest on Loan:
• If money is invested in the business by taking a loan then interest has to be paid on that loan. If Interest has not been paid in the same financial year then this is called Outstanding Interest. So, the entries will be the same as Outstanding Expenses • Journal Entry
• Adjustment: • If Interest on Loan is given outside the trial balance: In such case, two entries will be passed• It is shown in the Dr. side of the Profit & Loss A/c. • Amount of Interest on Loan is added to the Loan A/c in the Liabilities side of the Balance Sheet. • If Interest on Loan is given Inside the trial balance: It will only be shown in the Dr. side of the Profit & Loss A/c.
➢Proprietor’s Salary: • If the proprietor work in the firm, the firm has to a pay salary to the proprietor. The proprietor’s salary is an expense to the firm. • Journal Entry
• Adjustment: • If Proprietor’s Salary is given outside the trial balance: In such case, two entries will be passed-
• It is shown in the Dr. side of the Profit & Loss A/c. • Amount of Proprietor’s Salary is added to the Capital A/c in the Liabilities side of the Balance Sheet. • If Proprietor’s Salary is given Inside the trial balance: It will only be shown in the Dr. side of the Profit & Loss A/c.
➢ Provision for Bad & Doubtful Debts: • Even after deducting the bad debts from the debtors, all the remaining debtors cannot be considered as Good Debtors. We may have doubts about some of the debtors that whether they will be able to pay their debts or not, for such doubtful debtors a provision for a certain amount from the current year’s profit is made so that next year the amount which remains unrecovered can be adjusted from the provision. •
Journal Entry:
• Adjustment: • If Provision for Bad & Doubtful Debts is given outside the trial balance: In such case, two entries will be passed• It is shown in the Dr. side of the Profit & Loss A/c. • Amount of Provision for Bad & Doubtful Debts is deducted from the Debtors in the Assets side of the Balance Sheet. • If Provision for Bad & Doubtful Debts is given inside the trial balance: It will only be shown in the Dr. side of the Profit & Loss A/c
➢ Bad Debts Recovered: • Sometimes the amount earlier written as Bad Debts is now recovered, it is considered as a gain to the business. •
Journal Entry
• Adjustment: • If Bad Debts Recovered is given outside the trial balance: In such case, two entries will be passed• It is shown in the Cr. side of the Profit & Loss A/c or case of Bad Debts already given then it is deducted from Bad Debts in the Dr. side of the Profit & Loss A/c.
• Amount of Bad Debts Recovered is added to Cash A/c in the Assets side of the Balance Sheet. • If Bad Debts Recovered is given inside the trial balance: It will only be shown in the Cr. side of the Profit & Loss A/c or in e of Bad Debts already given then it is deducted from Bad Debts in the Dr. side of the Profit & Loss A/c
➢ Provision for Discount on Debtors: • Almost all businessmen provide discounts to their debtors to encourage them to make prompt payments. Provision for Discount on Debtors is created in the same way as the provision for bad & doubtful debts because at the end of the year there will undoubtedly be some debtors who will be provided da iscount to receive prompt payments next year. •
Journal Entry:
• Adjustment: • If Provision for Discount on Debtors is given outside the trial balance: In such case, two entries will be passed• It is shown in the Dr. side of the Profit & Loss A/c. • Amount of Provision for Discount on Debtors is deducted from the Debtors in the Assets side of the Balance Sheet. • If Provision for Discount on Debtors is given inside the trial balance: It will only be shown in the Dr. side of the Profit & Loss A/c.
Suggestive Reading • https://smallbusiness.chron.com/ • https://www.studocu.com/row/home • https://www.sec.gov/Archives/edgar/data/1504886/0001193125111 05359/dex991.htm • https://openstax.org/ • https://www.geeksforgeeks.org/
LEARNING OUTCOME 3 • Be able to interpret financial statements
• 3.1 Calculate financial ratios from a set of business accounts. •
3.2 Compare organisational performance using historical financial data
3.1 Calculate financial ratios from a set of business accounts Common ratios used to measure financial health Liquidity Ratio • Current ratio • Quick ratio
Profitability Ratio
• Gross profit margin • Net profit margin • Retrun or assets • Return on equity
Activity Ratio • Average days inventory • Inventory turnover • Average collection period • Average days payable • Cash conversion cycle
Leverage Ratio • Debt to equity • Debt to assets • Debt caverage ratio
3.2 Compare organisational performance using historical financial data • Historical data, in a broad context, is data collected about past events and circumstances pertaining to a particular subject. • By definition, historical data includes most data generated either manually or automatically within an enterprise. Sources, among a great number of possibilities, include press releases, log files, financial reports, project and product documentation and email and other communications.
• In a business context, historical data is used to make important strategic decisions about the present and future. Managers use historical data to track organizational performance over time, identify areas of improvement and make predictions about future trends. • Businesses are collecting more data than ever and often storing it for longer, both for their own purposes and to satisfy compliance requirements.
Suggestive Readings • https://www.bdc.ca/en • https://www.techtarget.com/whatis/ • https://www.nec.com/ • https://globalfinancialdata.com/historical-data • https://corporatefinanceinstitute.com/resourc es/accounting/financial-ratios/
LEARNING OUTCOME 4 • Understand how a tourism or hospitality business could manage its working capital and revenue management.
• 4.1 Explain the benefits and limitations of various sources of finance available to a business. •
4.2 Describe the process of budgetary control and revenue management in a tourism or hospitality business.
•
4.3 Prepare a cash budget.
• 4.4 Appraise a cash budget
4.1 Explain the benefits and limitations of various sources of finance available to a business Source of finance
Advantages
Disadvantages
Owners capital
quick and convenient doesn’t require borrowing money no interest payments to make
the owner might not have enough savings or may need the cash for personal use once the money is gone, it’s gone
Retained profits
quick and convenient once the money is gone, it is easy access to the money not available for any future no interest payments to make unforeseen problems the business might face
Bank loan
easy and quick to access can get a significant amount of money at one time
have to pay interest difficult for a new business to access
Overdraft
quick access allows emergency purchases
high interest rates is only a short term solution
Share issue
can gain lots of money quickly no interest payable
give away part of the business leaves a business open to takeovers shareholders receive dividends
Trade credit
access to supplies without immediate payment no interest
short term, must be paid off quickly usually small amounts
Leasing
leasing company may be responsible for repairs and maintenance
over time it can be a more expensive way to obtain assets assets aren’t owned by the business
Hire purchase
expensive assets can be purchased and paid back over time
interest is charged on hire purchase items equipment is not owned until the final payment is made
Government grants
does not need to be paid back available to small businesses
business needs to meet certain criteria it is time-consuming to apply for grants and to complete the paperwork
4.2 Describe the process of budgetary control and revenue management in a tourism or hospitality business • Revenue Management or Yield Management in a nutshell, is selling the right product, to the right customer, for the right price, to the right channel, at the right time. If you saw an advertisement today, bought a coffee or booked a room online, chances are that you have been “revenue managed”. These tactics and strategies allow different businesses to get the most out of their potential, a way to maximize their revenue. in order to be able to optimize revenue and use the practices, there are a number of strategies that need to be met
➢Understand Your Market • In order to implement a successful revenue management strategy, it is imperative that one should have a clear understanding of the market, where demand comes from and the various different local factors that might affect seasonal demand. One should also be aware of their audience and their needs, wants and expectations.
➢Segmentation and Price Optimisation • The concept of selling the right room to the right person at the right price requires one to appropriately segment the customer base. To do this, one need to identify different ‘types’ of the customer and then look at these different segments and evaluate when they book hotel rooms or hotel facilities, how they book them and other habits.
➢Working Closely With Other Departments • It is important to achieve close collaboration between the various different hotel departments, such as sales and marketing, in order to ensure that the revenue management strategies and their individual departmental strategies are in alignment with one another, and so that one can address challenges collectively
➢ Forecasting Strategies • One of the most important aspects of revenue management is forecasting, which allows to anticipate future demand and revenue, enabling necessary adjustments to be made. Within the hospitality industry, high-quality forecasting relies on accurate records being kept, including occupancy, room rates and revenue.
➢ Embracing Search Engine Optimisation • Search engines offer one of the single biggest opportunities for thoseoperating in the hotel industry to attract customers, which makes search engine optimisation an important part of a robust revenue management strategy. Through SEO, hotel owners can improve the visibility of their website on search engine results pages. As a consequence, you can improve the chances of attracting business from customers who are not specifically searching for your hotel, but who are searching for a hotel in your location
➢Choose the Right Pricing Strategy
• There are many different pricing strategies out there, and no one strategy will guarantee success. Instead, those in the hospitality sector need to consider the best strategy for their particular hotel, based on what they have to offer, who they are trying to attract and what strategy their competitors are employing.
➢ Focus on Mobile Optimization • For those in the hospitality industry, mobile has become one of the single most important revenue streams. As a result, any hotel or resort that is operating without having prioritised mobile optimisation is already operating at a distinct disadvantage compared to its competitors. Make sure your website is optimised for mobile viewing, meaning it loads quickly, the pages display properly on mobile devices and all buttons are fully functional
• Budgetary process in the hospitality industry is an ideal routine that reflects the interplay of strategic objective and resources constraint.Thus it is a tool for managerial decisions making concern for both human and material resources allocation. Budgetary control entails a repetitive circle of planning and control which is normally followed by appropriate information about actual result to the management for comparing them against a budget an initiating a control action wherever necessary budget and budgetary control constitute important management and internal control system and are central to the process of planning and control which are the major activities in an organization.
• The following steps are involved for the successful implementation of budgetary control system. • Organisation of budgetary control, • Budget centres, • Budget manual, • Budget officer, • Budget committee, • Budget period, and • Determination of key factor.
4.3 Prepare a cash budget
• A cash budget is important for a variety of reasons. For one, it allows to make management decisions regarding the cash position (or cash reserve). Without the type of monitoring imposed by the budgeting process, you may be unaware of the cycle of cash through your business. At the end of a year or a business cycle, a series of monthly cash budgets will show how much cash is coming into the company and the way it is being used. Seasonal fluctuations will be made clear.A cash budget also allows to evaluate and plan for the capital needs.The cash budget will help to assess whether there are periods during the operations cycle when one might need short-term borrowing
• There are three main components necessary for creating a cash budget. They are: ➢ Time period ➢ Desired cash position ➢ Estimated sales and expenses
➢Time period • The first decision to make when preparing a cash budget is to decide the period of time for which the budget will apply. That is, are you preparing a budget for the next three months, six months, twelve months or some other period?
➢ Cash Position • The amount of cash one wish to keep on hand will depend on the nature of the business, the predictability of accounts receivable and the probability of fasthappening opportunities (or unfortunate occurrences) that may require one to have a significant reserve of cash. One may want to consider the cash reserve in terms of a certain number of days' sales. the budgeting process will help one to determine if, at the end of the period, one have an adequate cash reserve
➢ Estimated Sales And Expenses • The fundamental concept of a cash budget is estimating all future cash receipts and cash expenditures that will take place during the time period. The most important estimate one will make, however, is an estimate of sales. Once this is decided, the rest of the cash budget can fall into place. If an increase in sales of, for example, 10 percent, is desired and expected, various other accounts must be adjusted in the budget. Raw materials, inventory and the costs of goods sold must be revised to reflect the increase in sales.
4.4 Appraise a cash budget Helps to control the business by: • Planning – budgets are prepared and targets are set for the overall business. This enables the business to work towards a definite goal and allows management to look ahead and be ready for challenging conditions. • Supervision – decisions will be made to ensure that the targets will be achieved and that policies laid down will be followed. • Evaluation – actual figures are compared with budgeted figures to see how closely performance matched estimated performance.
• The budget will enable management to see when its commitments are due and make sure that money is available at that time. • The budget will reveal periods when the business has excess funds. Excess money can be invested to earn interest. • The budget can reveal weaknesses in the business’s debt collection policy. If it is found that the average collection period for an accounts receivable to pay is three months and the normal terms of credit are 30 days, steps will have to be taken to improve this
• Adjustments for seasonal fluctuations can be made. Seasonal fluctuations in sales mean that in some businesses a large amount of money is received in one part of the year and very little in another part of the year. • The budget reveals those periods when shortages of funds may occur. Some firms rely on borrowed funds (such as bank overdrafts) to finance their activities. • Cash budgets are an important form of control over the business. The setting of targets is important so that employees can work within these constraints.
Suggestive Reading • https://www.freshbooks.com/ • https://osome.com/uk/term/trial-balance-uk/ • https://www.scribd.com/doc/45029984/Cash-Budget# • https://www.workspace.co.uk/ • https://tipalti.com/ • https://northcampus.uok.edu.in/downloads/20200512163403283.pd
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