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  • Hospitality Finance Accounting Statements Virginia Stipp Lawrence, MHM
  • Three Major Financial Statements
    • Balance Sheet-statement of financial position at a given date. Account balances for assets, liabilities, and owner’s equity
    • Income Statement-report on profitability of operations, including revenues earned and expenses incurred in generating the revenues for the period of time covered by the statement
    • 1.      Profit & Loss (P&L)
    • 2.      Operating Statement
    • Statement of Cash Flows (SCF)-explains the change in cash for the accounting period by showing the effects on cash of a business’s operating, investing, and financing activities for the accounting period. Cash is cash in house banks, cash in checking and savings, and certificates of deposit
  • The Fundamental Accounting Equation
    • Assets = Liabilities + Owners’ Equity
    • Assets-owned by the operation (cash, inventory, receivables, tangible items)
    • Liabilities-obligations to outside parties (payables)
    • Owners Equity-residual claims owners have on assets
      • Permanent-not closed at the end of the accounting period (capital stock and retained earnings)
      • Temporary-closed at the end of the accounting period (revenue and expense accounts)
  • The Accounting Cycle
    • 1.Record transactions in journals.
    • 2.Post amounts from journals to ledger accounts.
    • 3.Prepare a trial balance.
    • 4.Prepare adjusting entries.
    • 5.Post adjusting entries.
    • 6.Prepare an adjusted trial balance.
    • 7.Prepare the financial statements.
    • 8.Close the revenue and expense accounts.
    • 9.Prepare the post-closing trial balance.
  • Accounts & Ledgers
    • Account - 5 categories (A, L, OE, R, E)
    • An element for classifying and summarizing business transactions
    • A basic storage unit for data
    • Ledger - “Book of final entry”
    •    A group of accounts
      • General ledger = ‘master’ group of accounts
      • Chart of accounts = complete listing
  • Journal = “Book of original entry”
    • Intermediate step in recording transactions
    • “Journalizing” = recording a transaction in a journal
    • General journal ()
      • Posting
      • Transferring $ amounts from the general journal to the ledger accounts
    • BALANCE SHEET
    • REFLECTS ASSETS AND CLAIMS CALLED LIABILITIES AND OWNER’S EQUITY
    • BALANCE AT A GIVEN DATE
    • CONVEYS INFORMATION
    • BALANCE SHEET-Assets ASSETS
    • CURRENT ASSETS
    • NON CURRENTS ASSETS
    • UNIQUE CATEGORIES
    • LIQUIDITY
    • “ Liquid” versus “Illiquid” versus “Insolvent”
    • Liquid = Plenty of cash, or the ability to convert assets to cash
    • Illiquid = Little cash, or difficulty converting assets to cash
    • Insolvent = unable to meet your obligations to lenders & vendors
    • Property & Equipment
    • Relates to Tangible Assets
    • Land is not depreciated (land is unique)
    • Construction In Progress - All labor, materials & other expenses of construction - not depreciated
    • Leasehold Improvements - renovations & remodeling expenses on leased space
    • China, Glassware, Linen, Uniforms
    • Other Assets
    • Generally are Intangible items; as a result, they are amortized over time (amortized-The depreciation (or repayment) of an (usually) intangible asset (eg. loan, mortgage) over a fixed period of time.
    • Goodwill - excess of purchase price over net book value of a business
    • Deferred franchise fees
    • Preopening expenses
    • Organization costs
    • BALANCE SHEET-Liabilities
    • LIABILITIES
    • CURRENT LIABILITIES
    • LONG TERM DEBT
      • Note Payable, Mortgage, Bond
    • UNIQUE CATEGORIES
      • Commitments and Contingencies
    • Liquidity Ratios & Working Capital
    • Current Ratio = Current Assets____
    • Current Liabilities
    • Quick Ratio = Cash + Acct. Receivable
    • Current Liabilities
    • Working Capital =
    • Current Assets - Current Liabilities
    • Retained Earnings
    • Retained Earnings = Cumulative Net Income that has NOT been distributed as dividends (ignoring adjustments); Net Losses reduce Retained Earnings
    • Sole Proprietorships and Partnerships do NOT have retained earnings!!! All of their income is paid out to partners.
    • BALANCE SHEET-Owner’s Equity
    • OWNER’S EQUITY
    • CAPITAL STOCK
    • PAID IN CAPITAL
    • RETAINED EARNINGS
    • TREASURY STOCK
    • INCOME STATEMENT
    • DEFINED
    • A report of sales and expenses for a defined period of time, resulting in net income (loss) of the business
    • Between two balance sheet dates
    • FORMAT
    • INTERNAL
      • Lots of detail by department
    • EXTERNAL
      • Summary information only
    • Revenue, Expense, Gain and Loss Revenue —the inflow of assets, reduction of liabilities, or both resulting from the sale of products and services.
    • Expens e—the outflow of assets, increase of liabilities, or both incurred during the production and rendering of products and services.
    • Gain —an increase in assets, reduction in liabilities, or both resulting from an incidental transaction or a transaction that is neither a revenue nor an investment by owners.
    • Loss —a decrease in assets, increase in liabilities, or both resulting from an incidental transaction or a transaction that is neither an expense nor a distribution to owners.
    • Income Statement Format Revenues
    • – Direct Operating Expenses
    • Departmental Operating Income
    • – Overhead Expenses
    • Net Income
    • Cost of Sales Formula
    • Beginning inventory
    • – Inventory purchases
    • Goods available for sale
    • – Ending inventory
    • Cost of goods consumed
    • – Goods used internally
    • Cost of goods sold
    • Operated Departments Revenue Centers
    • Examples
      • Rooms
      • Food and Beverage
      • Telecommunications
      • Garage and Parking
      • Guest Laundry
    • Undistributed Operating Expenses Support Centers
    • Examples
      • Administrative and General (A&G)
      • Human Resources
      • Information Systems
      • Security
      • Marketing
      • Franchise Fees
      • Property Operation and Maintenance
      • Utility Costs
    • Statement of Cash Flows C ash Flow Classifications
      • A hospitality operation typically has cash inflows and outflows related to three activities:
      • Operating activities
      • Investing activities
      • Financing activities
    • STATEMENT OF CASH FLOW PURPOSE
      • Information regarding cash receipts and cash disbursements
      • Assess liquidity
      • Assess financial flexibility
      • Assess dividend policy
      • Assess investing and financing needs
      • Assess a company’s ability to generate cash from operations
    • OPERATING ACTIVITIES
    • Revenue and expense transactions
    • Interest and dividend income
    • Interest expense
    • Working capital account adjustments
    • Current Account Issues:
      • Dividends Payable - to Financing Activities
      • Marketable Securities -
      • Sale/Purchase to Investing Activities
    • Gain/Loss to Operating Activities
    • Current Portion of Long Term Debt - The reclassification of a portion of LTD to a Current Liability does NOT affect Cash!!!! (only the payment of the debt affects cash)
    • Interest Expense & Income Tax Payments - Are already included in the Income Statement
    • Gain/Loss on Sale of Equipment
    • The amount of the Gain or Loss goes to Operating Activities
    • The Sale Price affects Cash, and goes to Investing Activities
    • The Net Book Value (Cost - Accumulated Depreciation) does NOT affect cash and is NOT recorded on the SCF
    • Financing Activities Issues
    • Sale of Stock - Affects Cash
    • Repurchase of Stock - Affects Cash (either Treasury Stock or Common Stock)
    • Borrowing Money (taking down a Loan) - Affects Cash
    • Dividends Declared - Do NOT affect Cash (Dividend Payments affect Cash)
  • Standard Costs
    • Costs and Sales Concepts
    • Accounting Defines costs as reduction in the value of an asset for the purpose of security benefit or gain
    • Types of Costs
    • Fixed- normally unaffected by changes in sales volume , however they can and often change over time
    • Variable-clearly related to business volume
    • Controllable- can be changed in the short term (variable costs are usually found here)
    • Noncontrollable- cannot be changed in the short term (usually fixed cost)
    • Unit-refers to one item (one portion, one Martini)
    • Total-refers to the total of items of a given group (lunch items)
    • Prime Cost- costs of materials and labor; food, beverage, and payroll
    • Historical-used for comparison, establishment of goals for future
    • Planning-projection of revenues and expenses and uses for them
    • Example; Pro-Forma
    • The COST-TO-SALES RATIO ; COST PERCENT COST/SALES = COST PER DOLLAR OF SALE
    •   All percentages will be added together to equal 100%
    • Including but not limited to;
      • Operational costs (food, beverage, etc)
      • Labor
      • Fixed Costs
      • Profit
    • Industry Variations in Costs
    • Those with a low profit margin per item served depend on high business volume
    • Those with a high profit margin per item do not require high volume
    • Sales Concepts Monetary terms
      • Total Sales-all sales over a given time period
      • By Category-meal period, inventory system (ABC)
      • By Server
      • Be Seat or Cover
    • Price Sales Price-amount charged each customer; Prix fixe, a la carte, combo
    • Average Sale-total sales/ # of guests served (also called average cover)
    • Per Customer
    • Per Server
    • Non-Monetary Terms
    • Total Number Sold
    • Total Covers
    • Average Covers
    • Covers per hour / meal period/ day/ served
    • Seat Turnover/ Turns
      • # of seats occupied during a given period/ # of guests served during that period