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  1. 1. Chapter 17 Accounting, Finance, and Cost Control
  2. 2. After Reading and Studying This Chapter, You Should Be Able to: <ul><li>Describe the systems of accounting typically used by business organizations in the restaurant, lodging and club segments of the hospitality industry </li></ul><ul><li>Identify various accounting statements and outline the major components of an income statement, balance sheet and statement of cash flows </li></ul><ul><li>Review the basic role of managerial finance in hospitality operations including ratio analysis, cash management and budgeting </li></ul>
  3. 3. After Reading and Studying This Chapter, You Should Be Able to: <ul><li>Describe features of systems used to control major direct operating costs including food, beverages, labor and other operating costs </li></ul><ul><li>Calculate key financial ratios used to analyze the results of operations in hospitality operations </li></ul>
  4. 4. Accounting in the Hospitality Industry <ul><li>Financial recording of revenues and expenditures to maximize profit margin </li></ul><ul><li>Accounting department responsible for: </li></ul><ul><ul><li>Tracking </li></ul></ul><ul><ul><li>Reporting </li></ul></ul><ul><ul><li>Communicating </li></ul></ul><ul><li>Size of department depends on the size of the operation </li></ul>
  5. 5. Uniform System of Accounting and Regulatory Agencies <ul><li>Standardized accounting system for all industries </li></ul><ul><ul><li>Lodging </li></ul></ul><ul><ul><li>Restaurants </li></ul></ul><ul><ul><li>Clubs </li></ul></ul><ul><li>Guidelines for better decision-making </li></ul><ul><li>Industry-wide consistency </li></ul>
  6. 6. Principles Established by Profession <ul><li>GAAP </li></ul><ul><li>FASB </li></ul><ul><li>SEC </li></ul>
  7. 7. Types of Accounting <ul><li>Auditing </li></ul><ul><li>Financial </li></ul><ul><li>Managerial </li></ul><ul><li>Cost </li></ul><ul><li>Tax </li></ul>
  8. 8. Types of Business Organizations <ul><li>Proprietorship </li></ul><ul><li>Partnership </li></ul><ul><li>Corporation </li></ul>
  9. 9. Finance in the Hospitality Industry <ul><li>Cash inflows/outflows </li></ul><ul><li>Find money to run a business </li></ul><ul><li>Find money to grow a business </li></ul><ul><li>Make investments in real assets </li></ul><ul><li>Plan for companies’ financial future </li></ul><ul><li>Manage cash on hand </li></ul>
  10. 10. Financial Statements <ul><li>Income statement </li></ul><ul><li>Balance sheet </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Owner’s equity </li></ul></ul><ul><ul><li>Equity </li></ul></ul><ul><ul><li>Liquidity </li></ul></ul><ul><li>Statement of cash flow </li></ul>
  11. 11. Figure 17-1 Income Statement
  12. 12. Food and Beverage Cost Control <ul><li>Greatest percentage of operating cost </li></ul><ul><li>Average food cost percentage – 25 to 35 percentage of food sales </li></ul><ul><li>Average beverage cost percentage – 16 to 26 percentage of beverage sales </li></ul><ul><li>Reporting and tracking is critical </li></ul>
  13. 13. Cost Lowering Methods <ul><li>Specification sheets for inventory purchases </li></ul><ul><li>Standardized recipes </li></ul><ul><li>Detailed menu costing </li></ul><ul><li>Tracking </li></ul><ul><li>Security </li></ul><ul><li>Regulating inventory </li></ul><ul><li>Highlighting seasonal items </li></ul><ul><li>Educating employees </li></ul><ul><li>Include condiments, oils, dressings, etc. in plate cost </li></ul><ul><li>Perform regular yield tests </li></ul><ul><li>Consider employee meal cost </li></ul><ul><li>Monitor overtime </li></ul><ul><li>Training </li></ul>
  14. 14. Food Cost Percentage Cost of Foods Sold Total Food Sales x 100
  15. 15. Beverage Cost Percentage Cost of Beverage Sold Total Beverage Sales x 100
  16. 16. Labor Costs Control <ul><li>One of the largest operating costs </li></ul><ul><li>Adequate training is essential </li></ul><ul><li>Lower turnover helps maintain reasonable costs </li></ul><ul><li>Job descriptions facilitate better hiring practices which control costs </li></ul>
  17. 17. Labor Cost Percentage Total Labor Cost Total Sales Revenue
  18. 18. Other Operating Costs <ul><li>Property taxes </li></ul><ul><li>Maintenance </li></ul><ul><li>Music and entertainment </li></ul><ul><li>Business fees and licenses </li></ul><ul><li>Insurance </li></ul><ul><li>Management fees </li></ul><ul><li>Rent </li></ul><ul><li>Utilities </li></ul><ul><li>Uniforms </li></ul>
  19. 19. Other operating Cost Percentage Total Other Operating Costs Total Sales Revenue
  20. 20. Trends <ul><li>Increased use of technology </li></ul><ul><li>Sarbanes-Oxley Act of 2002 </li></ul><ul><li>Focus on increasing cost of business risk </li></ul>
  21. 21. Figure 17-2 Balance Sheet