Learning Objectives

• Describe the reasons why cash-handling procedures are important to organizations that have many cash transactions.

• Identify the checks and balances that are used in accounting for cash.

• State the precautions that need to be taken to secure cash in a retail operation.

Learning Objectives

• List at least 10 methods that are used to control costs in organizations.

• Describe the operating statement.• Discuss how a variance report is prepared,

using the operating statement as its basis.• Describe the characteristics of a profit and

loss statement. • State the uses for the profit and loss

statement and the consolidated profit and loss statement.

Learning Objectives

• Describe the characteristics of a balance sheet.

• Differentiate between assets and liabilities.

• Define owner’s equity and stockholders’ equity.

• Discuss the uses of the balance sheet and the consolidated balance sheet.

Cash Handling

• Cash Handling – The management of cash

transactions.– Includes the receiving, storing,

counting, recording, withdrawing, and depositing of cash.

Cash Handling

• Checks and balances– Cashier verifies bank amount at beginning

of shift– Cashier counts

amount in drawer at end of shift

Cash Handling – Checks and Balances

• Bank - The amount of money that the cash register drawer contains at the start of a shift.

• Cash Receipts - The amount of money that is present in the cash register drawer at the end of the day minus the starting bank.

Cash Handling – Checks and Balances

• Cash receipts should be deposited in commercial bank daily– Commercial Bank - A banking

institution that handles the everyday financial transactions of businesses.

Cash Handling – Checks and Balances

• Cash Register - A machine that records and displays the details of a sales transaction (such as the quantity and price of items purchased), as well as acting as a storage unit for the cash involved in these transactions.

• Cash receipts and cash register data are reconciled periodically

Cash Handling – Checks and Balances

• Cash register tapes are used to verify sales at the end of the day

• Cash Register Tapes - A record of cash transactions made and stored by the cash register that contains information about daily cash sales.

• Commercial bank employees also verify cash receipts when they are deposited

Cash Handling

• Security– A limited number of authorized, possibly

bonded people should have access to cash– Bonded - To bind by an agreement to pay a

certain amount of money upon failure to complete a job properly; insuring an organization against financial loss incurred by such.

Cash Handling

• Security– Cash must be secured when not being

handled, when counted, and when transported

– Safe - A place or container used to secure valuables from theft.

– Armored Transport - Transport of money between retail facilities and commercial banks by licensed and bonded companies.

Cash Handling

• Petty cash– Money that is kept on hand for making

emergency purchases or for minor expenditures that cannot be made through regular vendors in a timely manner.

– Should be used appropriately, not to avoid following procedures

– Is preferable over using money from cash receipts for emergency purchases

Cash Handling

• Petty cash– 1 month's supply of funds should be

kept on hand– When low, receipts are exchanged for

more petty cash– Some organizations use company

credit cards instead

Controlling Costs

• Material management– Negotiating good prices– Specifications– Using a prime vendor– Group purchases– Just-in-time delivery– Keeping up-to-date records of inventory– Use of POS system– Secure receiving, storage and work areas

Controlling Costs

• Workflow– Smooth forward workflow– Economies of scale– Quality control

• The workforce– Measuring and improving productivity– Monitoring work hours and avoiding

overtime– Scheduling employees for appropriate tasks

Controlling Costs

• Facilities maintenance– Investing in preventing maintenance

avoids larger replacement costs and disruption of workflow

Controlling Costs

• Management of utilities– Gas equipment is generally cheaper than

electric– Idle equipment not in use– Insulation for thermal equipment, windows– Automatic lights– Water-conserving fixtures/equipment– Recycling, composting

Controlling Costs

• Risk Management – That type of management concerned

with minimizing the liability of an organization in areas such as work-related illness, job-induced injury or stress, and products whose performance fails to meet set standards.

Controlling Costs

• Risk Management – ex: in health care, making

sure nutritional status of clients doesn't deteriorate during treatment

– Avoiding workplace injury/illness

Financial Reports

• Operating Statement– A document prepared by the accounting

department of an organization at the end of an accounting period that compares actual fiscal performance to the budget.

– A.K.A. a performance report.– Should be generated promptly so that

results can be used to make adjustments• ex: increased membership revenues for health

club = more customers, more staff needed to maintain level of service

Excerpt from an operating statement

Financial Reports

• Variance Analysis – A statement prepared by managers to account

for any deviation from the budget.– Budget Variance - Any deviation from the

budget.– Managers should identify variances on the

operating statement, and investigate the causes

– Some managers must submit formal variance analyses routinely

– Managers are responsible for identifying the cause and stopping it if necessary

Financial Reports

• Profit and loss statements– Profit and Loss Statement (P&L) -

A document generated by the accounting department of an organization that lists all the actual data accumulated for the accounting period, including both controllable as well as uncontrollable revenues and expenses, as well as net profits or losses.

Sample profit and loss statement

Financial Reports – Profit and Loss Statements

• Inventory– Manner chosen to value inventory affects P&L– Higher inventory value = expenses appear

lower = profit appears higher

• Indirect labor costs– May not appear in budget, but included in

P&L

• Overhead– May not appear in operating budget, but

included in P&L

Financial Reports – Profit and Loss Statements

• Depreciation - An accounting technique that spreads the expense of capital equipment or buildings over their life spans, because value decreases gradually with time. – It is calculated by dividing the purchase price

of an item by its expected lifetime.

• Taxes– Income taxes, not sales taxes– Taxes on employee wages are reported as

indirect labor costs

Financial Reports

• Consolidated Profit and Loss Statement – A report that merges all the data from

the profit and loss statements of an organization from multiple years into one report.

– It can be used for identifying trends over time.

Format for consolidated profit and loss statement

Financial Reports

• Balance Sheet – A financial report that summarizes an

organization’s assets, liabilities, and owners’ equity. It provides the user with a snapshot of the organization’s financial status at a specific point in time.

Financial Reports – Balance Sheet

• Assets - Items of value owned by a person or business.– ex: checking/ savings accounts, real

estate, inventories, equipment• Liabilities - Debts or other

financial obligations of a business.– ex: payroll, rent, invoices owed for

goods and services recently purchased, loan or interest payments

Financial Reports – Balance Sheet

• Current Assets - Cash and all assets that are readily available and can be converted to cash within a short period of time (usually one year).– Cash on hand, money in checking/savings

accounts– Inventory– Accounts Receivable - Money that is owed to

a business for products that have been delivered and invoiced.

– Prepaid Expenses - Expenses that are paid for in advance, such as insurance.

Financial Reports – Balance Sheet

• Fixed Assets - Non-liquid, tangible goods that have been capitalized and are being depreciated over time. – ex: land, buildings, equipment, and any

improvements like new carpeting, paint jobs, and the installation of security systems

– Liquid Assets - Items, like inventory, that can easily be converted to cash (opposite of fixed assets).

Financial Reports – Balance Sheet

• Other assets– ex: bonds, securities, surplus real

estate, funds invested in ongoing product development, intangible assets (name, reputation)

Financial Reports – Balance Sheet

• Current Liabilities - Short-term debt that is due to be paid in the near future.– Accounts Payable - Money that is owed by

a business to a creditor for the purchase of products, rent, mortgage payments, and other outstanding loans.

– Payroll Liability - Any salaries and wages that are owed to employees on the day that the balance sheet is prepared.

Financial Reports – Balance Sheet

• Current Liabilities– Accrued Liability - Expenses for

which payment will be made in a future period, such as paid time off and income taxes.

– Unearned Revenue - Liability incurred from the advanced payments for products that have not yet been delivered.

Financial Reports – Balance Sheet

• Long-Term Debt - Any debt that becomes payable after a year. – ex: mortgages, long-term leases, and

warranties on goods sold.

• Other liabilities– ex: post-retirement benefits for ex-

employees, potential liability from pending lawsuits

Financial Reports – Balance Sheet

• Ownership Equity - An owner’s net investment in a business after providing for full payment of all creditors; the difference between assets and liabilities.– Assets are in excess of liabilities by a

considerable amount = equity is high– Assets and liabilities are not

significantly different = equity is low

Financial Reports – Balance Sheet

• Ownership Equity – Owner’s Equity - The term used to

describe the ownership equity of a business with only one owner.

– Stockholders’ Equity - The term used to describe the ownership equity of a corporation for which there is more than one owner.

Sample balance sheet

Financial Reports

• Consolidated Balance Sheet – A report that consolidates all the data

from the balance sheets of an organization from multiple years into one statement.

– It is used to document financial conditions over time for internal and external reporting purposes.

Conclusion

• Money is vulnerable in any cash-based retail operation. A system of checks and balances must be put into place to account for and secure this asset and the personnel who handle it.

• Cost control is a part of every manager’s responsibility and can be implemented in many areas, including procurement, production, facilities and maintenance, labor management, and so on.

Conclusion

• Operating statements and variance analysis are the tools that individual managers use to measure their performance in financial terms.

• Profit and loss statements are tools that are used to show how an organization is performing financially.

• Balance sheets provide a snapshot of an organization’s financial standing. They balance the assets and liabilities of an organization with ownership equity.

Risk Management on a Personal Level

• Be sure you are performing responsibly, using current best practices

• Have adequate liability insurance– Note: insurance provided by an employer

covers you only on the job– Coverage should be proportional to risks,

based on type of patients/foodservice– Litigation is on the rise in skilled nursing

facilities