Rolando and Rosa have been operating their own hair salon for the past six years. They have been very successful and now are interested in franchising their particular hair system throughout the United States. They are aware that the hair care industry is a $16 billion activity in this country. Rolando and Rosa specialize in hair care for women, men, and children, and believe they can provide their services on a profitable basis for other franchisees.

Rolando and Rosa have estimated that the total cost for a new location would be between $65,000 and $136,000.

Franchise Fee $ 20,000

Leased Daposit $ 5,000

Leased Improvements $ 15,000- $65,000

Real Estate Rental Costs $ 2,000- $5,000

Equipment and Trade Fixtures $ 17,000- $30,000

Opening Supplies $ 1,000

Working Capital $5,000 - $10,000

They would expect that a new franchisee should have one-fourth to one-half of the total investment in cash and uld be able to finance the balance through some lending source.

Franchisees would have the opportunity to open multiple stores after successfully operating the first Hair Emporium salon for a sufficient length of time and generating sufficient profits. It is anticipated also that the franchisee would be in operation approximately six months after the initial signing of the franchising agreement. Additionally, they plan to offer a one-week course in hair care, cutting, hair forming techniques, settings, hair sculpturing, and management.

Rolando and Rosa have a major concern about the accounting methods and recordkeeping. They have hired a local bookkeeper to keep track of their own records, but find it more difficult each year in dealing with the local accounting firms and taxes.

They are concerned about what kind of accounting service they should provide for the franchisees and whether they should also utilize a computer system. They have kept a basic journal but have never developed an itemized general ledger

1. What type of accounting records and/or financial statement should Rolando and Rosa keep themselves and also offer their franchisees?
2. Are balance sheets and operating statements important or necessary on a monthly or yearly basis?
3. Should they recommend a common accounting procedure for all franchisees?
4. Discuss the following financial/accounting records for the Hair Emporium: Journal entry, Detailed general ledger, Bank account reconciliation, Monthly payroll register, Accounts receivable, Comparative operating statement, Taxes, Monthly business/accounting consultation