Cha13 Financial Mgmt

Chapter 13 Financial Management Food and Beverage Operations Sunday, May 24, 2009 1

Chapter Objectives  Describe the origins and the advantages of uniform systems of accounts.  Explain how an operations budget is used as a standard.  Identify the components and uses of income statements and balance sheets LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 2

Chapter Objectives (cont.)  Describe and calculate liquidity, solvency, activity, profitability, and operating ratios.  Briefly discuss fundamental accounting tasks typically performed by software programs. LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 3

Managing the Accounting System  Staff (advisory) personnel: managers, bookkeepers, and controller  Internal users: all managers  External users: owners and investors, creditors and lenders, government agencies, the public Sunday, May 24, 2009 4

General Accepted Accounting Unit of measurement Historic cost Going concern Conservatism Objectivity Realization Matching Consistency Sunday, May 24, 2009 5

Cash Accounting vs. Accrual Accounting  Cash accounting: records transactions only when cash is received or paid out  Accrual accounting: records expenses incurred during an accounting period but are not actually paid until the following period ◦ Conforms to matching principles Sunday, May 24, 2009 6 Two types depend on size of  opera1on

Advantages of a Uniform System of Accounts  Turnkey system for new business  Standardized financial statement formats  Explanations of individual accounts  Sample bookkeeping documents  Continually revised LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 7

Advantages of a Uniform System of Accounts (cont.)  Widely adopted and recognized  Provides common language and basis for comparison between operations  Facilitates reporting of industry statistics Exhibit 1, p.353 The Restaurant Industry Dollar LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 8

LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 9

The Operations Budget  Profit plan ◦ Projecting revenue ◦ Determining profit requirements ◦ Estimating expenses levels  Control tool ◦ Budgets ◦ Reports ◦ Variances LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 10 Budget controls and guides principles of  business

Accounting Techniques  Internal controls ◦ Comparative statistical analysis ◦ Planning and forecasting sales and cost of goods sold ◦ Dept. budgeting controls ◦ Predetermined standards and evaluation reports ◦ Storage areas Sunday, May 24, 2009 11

Accounting Techniques (cont.) ◦ Cost analysis  Fixed  Variable  Mixed ◦ Cost-volume-profit (CVP) analysis  Used to set specific profit objectives ◦ Cash budgeting  helpful in managing property’s cash flow Sunday, May 24, 2009 12

Uses of Income Statements  Financial statement that consists of info regarding the results of operations, including revenue, expenses, and profit  Financial statement on regular basis  Efficiency of management  Controllable expenses  Supporting schedules LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 13

The Income Statement  Calculating actual food cost/cost of sales ◦ Cost of Sales = Beginning Inventory + Purchase – Ending Inventory ◦ Food Cost Percentage = Food Cost of Sales / Food Revenue X 100 LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 14

The Income Statements (cont.) Adjustment to basic cost of sales Exhibit 7 p.362 Cost of Sales : Food Charge to: Value of Beginning Inventory + Purchases - Value of Ending Inventory Unadjusted Cost of Sales: Food +Transfers to Kitchen Food Cost - Transfers from kitchen Beverage Cost LIU, HOST154 MCC Hospitality & Tourism - Employee Meal Cost Labor Cost Sunday, May 24, 2009 15 - Value of complimentary Promotion

The Balance Sheet  A finical statement giving the account balances for: ◦ Assets: current/liquidity or noncurrent ◦ Liabilities: current or noncurrent ◦ Equity: the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses) Assets = Liabilities + Equity LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 16

Five Common Ratio Groups Three standards: 1. Liquidity 1. A past period 2. Solvency 2. Industry average Return On 3. Activity Investment (ROI) 4. Profitability 3. The budget 5. Operating LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 17

Liquidity Ratios & Solvency Ratios LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 18

Activity Ratios & Profitability Ratios  Food Inventory Turnover = Cost of Food Revenue/Average Inventory  Profit Margin = Pretax Net Income/Total F&B Revenue LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 19

Operating Ratios  Food Cost Percentage = Cost of Food Cost/Food Revenue  Beverage Cost Percentage = Cost of Beverages Sold/Beverage Revenue  Labor Cost Percentage = Labor Costs/Total F&B Revenue LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 20

Operating Ratios (cont.)  Average Food Service Check = Total F&B Revenue/Guests Served  Seat Turnover = Number of Guests Served / Number of Available Seats LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 21

Technology and the Accounting Process  Accounts receivable software  Accounts payable software  Payroll accounting software  Financial reporting software LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 22

LIU, HOST154 MCC Hospitality & Tourism Sunday, May 24, 2009 23

Fiscal Review  Describe the origins and the advantages of uniform systems of accounts.  Explain how an operations budget is used as a standard.  Identify the components and uses of income statements and balance sheets  Describe and calculate liquidity, solvency, activity, profitability, and operating ratios.  Briefly discuss fundamental accounting tasks typically performed by software programs. 24 Sunday, May 24, 2009 24

Cha13 Financial Mgmt

by Dean Louie on May 23, 2009

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