Critical Thinking #1 - Use Critical Thinking in the Solution of Management Accounting Problems Commonly Encountered in the Hospitality Industry

Answer the following two questions based on the monthly cash flow

data presented here:

January

February

January

February

Operating Receipts

1,000,000

1,100,000

Non-Operating Receipts

500,000

100,000

Operating Expenditures

750,000

875,000

Non-Operating Expenditures

900,000

200,000

Net Operating Cash Flow

250,000

225,000

Net Non-Operating Cash Flow

(400,000)

(100,000)

Net Total Cash flow

(150,000)

125,000

Beginning Cash Balance

50,000

Cumulative Cash Balances

(100,000)

25,000

1)

The business needs to increase its cash flow in:

a)

January

b)

February

2)

In which month does this business have an overdraft in the bank?

a)

January

b)

February

c)

Neither month

3

In April your hotel receives $1,000 to reserve a room in June.

How would this appear on the May monthly cash flow statement?

How would this affect the May income statement?

a)

Cash flow statement

May

Receipts:

Customer advances

No effect

Income statement

Room sales:

No effect

b)

Cash flow statement

May

Receipts:

Customer advances

No effect

Income statement

Room sales:

$1,000

c)

Cash flow statement

May

Receipts:

Customer advances

$1,000

Income statement

Room sales:

No effect

4)

In April your hotel receives $1,000 to reserve a room in June.

How would this appear on the June monthly cash flow statement?

How would this affect the June income statement?

a)

Cash flow statement

June

Receipts:

Customer advances

No effect

Income statement

Room sales:

No effect

b)

Cash flow statement

June

Receipts:

Customer advances

No effect

Income statement

Room sales:

$1,000

c)

Cash flow statement

June

Receipts:

Customer advances

$1,000

Income statement

Room sales:

No effect

5)

Your restaurant outsources cleaning services at a monthly cost of $500.

Your contract starts on July 1, but you pay one month later.

How would this appear on the July monthly cash flow statement?

How would this affect the July income statement?

a)

Cash flow statement

July

Expenditures:

Cleaning services

No effect

Income statement

Cleaning Expense

No effect

b)

Cash flow statement

July

Expenditures:

Cleaning services

No effect

Income statement

Cleaning Expense

$1,000

c)

Cash flow statement

July

Expenditures:

Cleaning services

$1,000

Income statement

Cleaning Expense

No effect

6)

Below are presented the sales in dollars and covers, as well as the

cost of sales for a restaurant.

June

May

Sales

$60,000

$57,000

Cost of sales

31,500

31,200

Gross profit

$28,500

$25,800

Covers

15,000

13,000

In this restaurant what is responsible for the higher June gross profit?

a)

Decrease in price

b)

Increase in covers sold

c)

Decrease in unit cost

7)

If a restaurant has increasing net income and

decreasing operating cash flow, as indicated by the

data shown below -

July

August

Net income

($5,025)

$8,295

Operating cash flow

($12,350)

($18,470)

then this means that:

a)

The restaurant may be granting its customers credit terms

that are too lenient

b)

The restaurant may be paying on a cash basis for the goods

and services it purchases

c)

Both of the above

d)

None of the above

8)

If a restaurant's operating cash flow is increasingly

negative its cash flow situation would be improved by

doing which of the following?

a)

Collect accounts receivable faster by granting prompt

payment discounts

b)

Negotiate more extended credit terms with suppliers

c)

Borrow some funds

d)

Sell more stock or otherwise obtain more investment

by the owners

e)

Sell some unused assets

f)

All of the above

9)

Based on the following sub-section of the operating cash flow section of

the Cash Flow Statement select the correct answer from the list below.

Analysis of working capital accounts related to operations

Increase in A/R

(2,000)

Decrease in Inventory

7,000

Increase in prepaid expenses

500

Increase in A/P

1,000

Increase in Taxes payable

700

Decrease in unearned revenue

(7,000)

a)

The changes in these accounts indicate that this company's

working capital related to operations is decreasing.

b)

The changes in these accounts indicate that this company's

working capital related to operations is increasing.

c)

The above is insufficient information to determine whether or

not this company's working capital is increasing or decreasing.

10)

If you expect sales to decrease would you prefer that more of your expenses be

variable or fixed?

a)

Variable

b)

Fixed

c)

Neither answer makes sense