Week 4 EOC: Chapter 4 Quiz Question 3

a. Compare Rachel’s Cash % with the chain’s %.  Is it higher or lower?  What might this mean?

b. Compare Rachel’s Inventories % with the chain’s %.  Is it higher or lower?  What might this mean?

c. Compare Rachel’s Accounts Payable % with the chain’s %.  Is it higher or lower?  What might this mean?

d. Compare Rachel’s Notes Payable % with the chain’s %.  Is it higher or lower?  What might this mean?

Answers:

a. When comparing Rachel's Cash % with the chain's %, Rachel was 12.2% higher than the chain's %. This means that Rachel's cash/debit card transactions were coming in at a higher volume than the chain. "The term cash refers to the cash held in cash banks (for example, those used by cashiers in a restaurant), money held in checking or savings accounts, electronic fund transfers from payment card companies (such as MasterCard, American Express, Visa, and the like), and certificates of deposit (CDs), which are financial instruments with a fixed term and interest rate" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. Ch 4, Pg. 122. VitalSource Bookshelf Online).

b. When comparing Rachel's Inventories % with the chain's %, Rachel was 10.1% higher than the chain's %. This means that Rachel's value of food and beverages was higher, as well as supplies for the business. 

c. When comparing Rachel's Accounts Payable % with the chain's %, Rachel was 33.7% higher than the chain's %. This means that Rachel has a high percentage of obligations of business that will be repaid within a year. Including (notes payable, income taxes payable, and accounts payable). "The most important sub-classifications of current liabilities include notes payable, income taxes payable, and accounts payable. In the hospitality industry, current liabilities typically consist of payables resulting from the purchase of food, beverages, products, services, and labor. Current period payments utilized for the reduction of long-term debt are also considered a current liability" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. Ch 4, Pg. 127. VitalSource Bookshelf Online).

d. When comparing Rachel's Notes Payable % with the chain's %, Rachel was 8.8% higher than the chain's %. This means that Rachel had a high amount of promissory notes that had been issued by the company. "However, there are a variety of important reasons why they too must be able to read and analyze their own balance sheets to determine items such as the current financial balances of cash, accounts receivable, inventories, and accounts payable, and other accounts that have a direct impact on operations" (Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. Ch 4, Pg. 117. VitalSource Bookshelf Online).