Assignment Code: BTMC-138/TMA/2022-23

Course Code: BTMC-138

Assignment Name: Managerial Accounting and Finance in Tourism

Year: 2022-2023

Verification Status: Verified by Professor

Assignment-A

Answer the following in about 500 words each.

Q1) What are the advantages of maintaining a Petty Cash Book? Explain the method of balancing and posting the Petty Cash Book.

Ans) Maintaining a Petty Cash Book is an essential component of managing the small, everyday expenses that arise in a business. It allows businesses to track their spending in real-time, reduce administrative time and effort, and ensure that all expenses are accounted for. Here are some of the advantages of maintaining a Petty Cash Book:

1. Accountability: A Petty Cash Book provides a record of all petty cash transactions, making it easier to track how funds are being spent and who is responsible for them. This provides transparency and accountability, which is particularly important in cases where there are multiple employees responsible for petty cash management.

2. Efficiency: Using a Petty Cash Book can help streamline the process of managing small expenses and reduce the time and effort required for reimbursement and record-keeping. By keeping a running total of petty cash spending in the book, the process of reconciling expenses and preparing financial statements can be simplified.

3. Control: A Petty Cash Book can help to ensure that petty cash is used only for authorized purposes and that there is no misuse of funds. It is particularly useful in controlling cash leakage, which can occur when employees take advantage of loose controls to use petty cash for personal expenses.

4. Accuracy: The Petty Cash Book provides an accurate and detailed record of all petty cash transactions. This is particularly important in cases where the business needs to present detailed financial statements or comply with auditing requirements.

To balance and post a Petty Cash Book, follow these steps:

1. Start by recording the opening balance of the petty cash fund. This should be the same amount that is physically present in the cash box.

2. Record all petty cash transactions in the Petty Cash Book. This includes the date, the amount spent, the name of the payee, and a brief description of the expense.

3. Make sure to categorize each expense according to its purpose, such as office supplies, travel expenses, or postage. This will make it easier to track spending and prepare financial statements.

4. Regularly reconcile the Petty Cash Book to ensure that the total amount of cash in the cash box matches the total amount recorded in the book. This should be done on a daily or weekly basis to avoid discrepancies.

5. At the end of the month or whenever the petty cash fund needs to be replenished, prepare a reimbursement request for the total amount of expenses recorded in the Petty Cash Book.

6. Record the reimbursement in the general ledger. Debit the appropriate expense accounts for the total amount spent and credit the cash account for the amount reimbursed.

7. Finally, record the remaining cash balance in the Petty Cash Book and start a new page for the next month or replenishment period.

By following these steps, businesses can ensure that their Petty Cash Books are accurate, up-to-date, and reflect all petty cash transactions. This can help businesses maintain control over their spending, reduce administrative time and effort, and provide an accurate record of all petty cash transactions.

Q2) Explain the different methods of calculating Return on Assets with a suitable example.

Ans) Return on Assets (ROA) is a financial performance ratio that measures how efficiently a company is generating profit from its assets. The ratio is calculated by dividing a company’s net income by its total assets. ROA is an important metric for investors and analysts as it shows how well a company is using its resources to generate profits.

Assignment-B

Answer the following in about 250 words each.

Q3) Describe the advantages and limitations of accounting.

Ans) Accounting is an essential aspect of every business, providing a detailed analysis of the financial health of a business. It offers numerous advantages to businesses, including proper financial management and informed decision making. However, it also has certain limitations that businesses should be aware of when using accounting as a tool for managing their finances.

Advantages of Accounting

1. Financial Information: Accounting provides accurate and reliable financial information to businesses that help them to track their financial performance and make informed decisions.

2. Compliance: Accounting assists in maintaining regulatory compliance and preparing financial statements that meet the standards set by regulatory bodies.

3. Performance Evaluation: Accounting helps businesses to evaluate their financial performance and identify areas for improvement.

4. Planning and Budgeting: Accounting aids in planning and budgeting by forecasting revenue and expenses and allowing businesses to allocate resources effectively.

5. Record Keeping: Accounting helps in maintaining financial records that provide evidence in case of an audit.

Limitations of Accounting

1. Subjectivity: Accounting involves a certain degree of subjectivity, which can lead to differences in the interpretation of financial information.

2. Historical Data: Accounting relies on historical data that may not reflect the current economic environment, making it difficult for businesses to make informed decisions about the future.

3. Complexity: Accounting can be complex and requires specialized knowledge and skills, making it difficult for small businesses or individuals to manage their finances effectively.

4. Cost: Accounting can be costly, especially for small businesses that may not have the resources to hire an accounting professional.

While accounting offers several benefits to businesses, such as better financial management and informed decision-making, it also has certain limitations that businesses should be aware of when using accounting as a tool for managing their finances. By understanding both the advantages and limitations of accounting, businesses can make informed decisions regarding their financial management and achieve their financial objectives.

Q4) What do you mean by accounting concepts? Briefly explain the accounting concepts which guide the accountant at the recording stage.

Ans) Accounting concepts are a set of fundamental principles and assumptions that guide the practice of accounting. These concepts serve as a framework for recording and analysing financial transactions and help ensure the accuracy and reliability of financial statements.

The following are the main accounting concepts that guide the accountant at the recording stage:

1. Entity Concept: This concept states that a business entity is separate from its owners, and financial transactions of the business should be recorded separately from the personal finances of the owners.

2. Going Concern Concept: This concept assumes that a business will continue to operate for an indefinite period, and financial statements are prepared on the basis that the business will continue to operate in the foreseeable future.

3. Monetary Unit Concept: This concept assumes that only transactions that can be expressed in monetary terms are recorded in the financial statements.

4. Cost Concept: This concept states that all assets are recorded at their cost price, and depreciation is charged over their estimated useful lives.

5. Matching Concept: This concept requires that expenses incurred in generating revenue should be recognized in the same period in which the revenue is earned.

6. Revenue Recognition Concept: This concept requires that revenue should be recognized when it is earned and realized, regardless of when the payment is received.

These concepts guide the accountant in preparing accurate and reliable financial statements by ensuring that transactions are recorded consistently, and financial statements are prepared on a basis that reflects the true financial position and performance of the business. By following these concepts, the accountant can ensure that the financial statements are useful to stakeholders, such as investors, creditors, and management, in making informed decisions about the business.

Q5) What are accounting standards? What is the need of issuing accounting standards?

Ans) Accounting standards are a set of rules, guidelines, and principles issued by a regulatory body, such as the Institute of Chartered Accountants of India, that guide the preparation and presentation of financial statements. Accounting standards ensure that financial statements are consistent, transparent, and comparable, allowing stakeholders to make informed decisions based on reliable and accurate information.

The need for issuing accounting standards arises because financial statements are used by various stakeholders, including investors, lenders, regulators, and management, to make critical decisions about the business. These stakeholders rely on the information presented in financial statements to assess the financial health, performance, and prospects of the business.

Accounting standards provide guidance on various accounting issues, including the recognition, measurement, and disclosure of assets, liabilities, revenue, expenses, and other financial transactions. By following these standards, companies can ensure that their financial statements are consistent with those of other companies and that their financial information is reliable, relevant, and comparable.

The benefits of issuing accounting standards include:

1. Enhancing comparability and consistency of financial statements across different companies, industries, and countries.

2. Ensuring the reliability and transparency of financial information, reducing the risk of fraud, and improving confidence among stakeholders.

3. Facilitating the development of accounting education and training programs, leading to the better quality of accounting and financial reporting practices.

4. Improving the efficiency and effectiveness of auditing processes, making it easier for auditors to assess the quality of financial statements.

Assignment-C

Answer the following in about 100 words each.

Q6) What is a Journal Entry?

Ans) A journal entry is the act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company's debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit. Journal entries can record unique items or recurring items such as depreciation or bond amortization. In accounting software, journal entries are usually entered using a separate module from accounts payable, which typically has its own subledger, that indirectly affects the general ledger. A properly documented journal entry consists of the correct date, amount(s) that will be debited, amount that will be credited, narration of the transaction, and unique reference number.

Q7) Differentiate between Fixed Assets and Semi-fixed Assets.

Ans) Fixed assets are long-term assets that are used in the production of goods or services, or for rental to third parties, and are not intended for resale. They are typically used over a period of more than one accounting period, and their value decreases over time due to depreciation. Examples of fixed assets include buildings, land, machinery, and equipment. Semi-fixed assets are a subcategory of fixed assets and are assets that have a fixed component and a variable component. These assets are not used continuously, and their use varies depending on the level of production or demand. The fixed component of semi-fixed assets includes items such as equipment, while the variable component includes items such as labour, fuel, and raw materials. Examples of semi-fixed assets include specialized machinery used in the manufacturing of a specific product or an aircraft used for scheduled flights.

Q8) Explain the different formal and informal credit arrangements.

Ans) Formal credit arrangements refer to the credit facilities provided by regulated financial institutions such as banks, credit unions, and other financial intermediaries. These credit arrangements are typically structured and governed by legal and regulatory frameworks. The borrowers are required to provide collateral or meet specific criteria to obtain loans or credit facilities. Interest rates are determined by the lender and are typically higher than those of informal credit arrangements. The repayment period is fixed and must be adhered to by the borrower. Informal credit arrangements, on the other hand, refer to credit facilities that are provided by individuals, groups, or unregulated financial intermediaries. These credit arrangements are usually based on trust and personal relationships rather than legal contracts. Borrowers may not be required to provide collateral or meet specific criteria to obtain loans or credit facilities. Interest rates are typically lower than those of formal credit arrangements but can be higher if the lender perceives a higher risk. Repayment periods can be flexible and may be based on the borrower's ability to repay.

Q9) What are the uses of ratio analysis?

Ans) Ratio analysis is a powerful tool used by businesses to assess their financial health and performance. It involves comparing various financial ratios that provide insights into a company's liquidity, profitability, efficiency, and solvency. The primary uses of ratio analysis are:

1. Performance Evaluation: Ratio analysis helps businesses to evaluate their performance and make informed decisions. For instance, they can identify areas of strength and weakness, set performance targets, and track progress towards those targets.

2. Financial Forecasting: By analysing ratios, businesses can identify potential issues and develop contingency plans to address them. They can also use ratio analysis to forecast future financial performance, which is useful in making investment decisions.

3. Benchmarking: Ratio analysis allows businesses to compare their performance against that of their peers or competitors. This helps them to identify areas where they are lagging and adopt best practices to improve their performance.

4. Creditworthiness: Ratio analysis is also used by lenders to assess the creditworthiness of businesses. By analysing ratios like debt-to-equity ratio and interest coverage ratio, lenders can determine the level of risk associated with lending money to a particular business.

Q10) What is cash flow statement?

Ans) A cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company over a specified period of time. It shows the sources of cash that a company has generated and the uses of cash during the period, providing a clear picture of the company's liquidity. The cash flow statement is divided into three sections: operating activities, investing activities, and financing activities. The operating activities section reports cash flows from day-to-day business operations, such as cash received from customers and cash paid to suppliers. The investing activities section reports cash flows related to the purchase or sale of long-term assets, such as property, plant, and equipment. The financing activities section reports cash flows related to the issuance or repayment of debt, payment of dividends, or issuance of new shares. A cash flow statement helps investors and creditors assess a company's ability to generate cash, which is a crucial indicator of financial health. Positive cash flow indicates that the company is generating more cash than it is using, while negative cash flow suggests that the company may be facing liquidity issues. A cash flow statement is an essential tool for evaluating a company's financial performance and making informed investment decisions.