1.4 Velvet Lounge Background: Velvet Lounge is a premier upscale nightclub located in the heart of San Francisco. It has two levels, which are fully stocked with two bars on each level. Velvet Lounge is richly decorated with velvet furniture, mahogany walls, and giant chandeliers to create a very luxurious setting. Velvet Lounge may be entirely rented for hosting a private event. Most of the time, the club is rented out for people to host a theme party or an after-party for concerts or other special events. People who tend to rent the entire club are mostly promoters or radio stations. Admission fees are to be determined by the host of the event and all of the admission fees go to the host. This gives the promoters an incentive to bring in a large crowd. Velvet Lounge has private VIP rooms that may be rented for birthday parties and special occasions on a smaller scale. Depending on the size of the room that is rented, the customer will be given a certain number of VIP guest passes. Internet Use: Velvet Lounge's official Web site enables customers to see upcoming events at the club. The Web site is used to provide background information about the club to the public. General information such as location and management contact information is posted on the site. Pictures of the club are also posted on the site. Velvet Lounge's Web site allows customers to subscribe to its mailing list and to be notified of special events. This allows Velvet Lounge to keep in touch with its customer base. The mailing list is also a great tool for targeted promotions. Detailed information about VIP room rentals is available from the Web site. Customers may submit a request to reserve a VIP room or the entire club through the Internet with their contact information. Each request is assigned to a manager who will then check for availability and respond to the customer. Expenditure Cycle: Velvet Lounge purchases alcohol and other beverages from several vendors. The vendors provide different products or only one product for the club. Once Velvet Lounge has ordered from a vendor, the vendor remains in the database even if the club has not made any recent purchases from the vendor. A purchase can consist of multiple beverage items or it can include only one kind of beverage. All purchase orders must be made by the purchasing manager. Depending on the payment terms with specific vendors, Velvet's payments may be due in full upon delivery or payments may be due within 30 days of receipt of goods. Either way only one check is issued per purchase order because payments are always made in full. Only the cashier is authorized to handle cash disbursements and cash receipts. Velvet Lounge uses a single checking account for cash disbursements and cash receipts. All inventories are stored on-site in the stock- room of the club. Revenue Cycle: Velvet Lounge has two sources of income: room rentals and bar service. A customer can rent the entire club or the VIP rooms. Velvet Lounge does not distinguish between the two dif- ferent customer bases. All rental reservations are initiated by the request of a customer in person or via the telephone, fax, or the Internet. Once a reservation request has been received it is directed to a manager for approval. The manager assigned to the specific reservation request will check the company database for availability and respond to the customer accordingly. If the room is available, the manager will provide a quote for the customer. When the customer confirms reservation of the room(s), all the necessary contact information of the customer is entered into the database. Payment in full for the rental is due upon confirmation of the reservation. That is, Velvet Lounge receives one payment for every rental reservation. Velvet Lounge also serves drinks from its bars. Velvet Lounge has full control of all the bars and retains all of its proceeds. Only staff employees take drink orders and serve the drinks. Velvet Lounge employees serve at the bar and the VIP rooms. Similarly, all orders must be paid for in full at the time of purchase. Again, cashiers are the only employees who handle all the cash receipts from room rentals and drinks purchases. Required: 1. Construct an REA diagram to depict Velvet Lounge's revenue cycle. 2. Construct an REA diagram to depict Velvet Lounge's expenditure cycle.