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Accounting & Financial
Management
Introduction to Managerial Accounting
Larry Ross, Ph.D.Barnett School of Business & Free EnterpriseFlorida Southern College @ Lakeland, FL
2014 BMI II ~ Managerial Accounting
Learning Objectives
At the end of this session you will be able to:
1. Relate accounting’s role to club management
2. Determine the financial “health” of the club
3. Assess the club’s level of financial performance
4. Apply the CVP model as a decision-making tool
5. Compare and contrast the advantages and disadvantages of leasing
2014 BMI II ~ Managerial Accounting
Sources of Information
Accounting for Club Operations Ch. 2,5,6,9 & 11
Contemporary Club Management 3rd ed. Ch. 11
Uniform System of Financial Reporting for Clubs
White Papers on Club Management, VIII:16
2014 BMI II ~ Managerial Accounting
4 Major Topics
1. Key Accounting Terms &
Principles
2. Financial analysis using Ratios
3. Decision-making with CVP
Analysis
4. Impact of the decision to lease
2014 BMI II ~ Managerial Accounting
The Accounting Function
Information-oriented
1)External Users
2)Internal Uses
Support Function
2014 BMI II ~ Managerial Accounting
6 Branches of Accounting1. Financial Accounting2. Cost Accounting3. Managerial Accounting4. Tax Accounting5. Auditing6. Accounting Info Systems
2014 BMI II ~ Managerial Accounting
Generally Accepted Accounting Principles
(GAAP)
Cost Principle Going Concern Unit of Measurement Objective Evidence Full Disclosure
2014 BMI II ~ Managerial Accounting
Generally Accepted Accounting Principles
(GAAP)
Consistency Matching Conservatism Materiality Cash Basis vs. Accrual
2014 BMI II ~ Managerial Accounting
Accounting BasicsFundamental Accounting
Equation (A = L + ME) Assets Liabilities Member’s Equity
PermanentTemporary
2014 BMI II ~ Managerial Accounting
Typical ASSET Accounts
Cash Accounts Receivable Food & Beverage Inventory Prepaid Expenses Fixed Assets (Building &
Equipment)
2014 BMI II ~ Managerial Accounting
Typical Liability Accounts
Accounts Payable Accrued Expenses Unearned Income Note Payable Mortgage Payable
2014 BMI II ~ Managerial Accounting
Typical Equity Accounts
Capital Stock
Designated net Assets
Undesignated net Assets
2014 BMI II ~ Managerial Accounting
Typical Revenue Accounts
Membership dues Initiation fees Food revenue Beverage revenue Rentals and other
revenue
2014 BMI II ~ Managerial Accounting
Typical Expense Accounts
Food cost Beverage cost Entertainment expense Administrative & general Energy costs
2014 BMI II ~ Managerial Accounting
Statement of Financial Position
“Snapshot” of account balances
A = L + OE Balanced via the
Proprietorship Accounts
Indicates financial “health”
2014 BMI II ~ Managerial Accounting
What can We Learn from the Statement of Financial
Position
Horizontal Analysis
Vertical Analysis
Base-year Comparisons
Ratio Analysis
2014 BMI II ~ Managerial Accounting
Statement of Activities
“Video” of financial activity
Profit = Revenue – Expenses
Closed-out to Member’s Equity
Indicates financial performance
2014 BMI II ~ Managerial Accounting
What can We Learn from the Statement of
Activities
Departmental Statements Operating Statistics
Multi-year trendsGeographic & size divisions
Analysis of Income Statement
Statement of Cash Flows
“…how much cash was provided from operations, how much from
debt, how much came from memberships, and how much
went to purchase assets.”
2014 BMI II ~ Managerial Accounting
Classification of Cash Flows
Operating Activities
Investing Activities
Financing Activities
Practice Problem #1
Evaluate the financial health and the financial
performance of a private club (refer to handout)
2014 BMI II ~ Managerial Accounting
Problem #1 Discussion
A. Is the WWCC financially “healthy”?
B. How would you rate the 2011 financial results of the WWCC?
C. What is the biggest financial challenge facing the WWCC?
Ratio Analysis
“. . .interpret the reported facts to discover aspects. . .
that could otherwise go unnoticed.”
2014 BMI II ~ Managerial Accounting
Ratio Analysis
Four Key Elements: 2 Indicators – Performance & Health
3 Sources of Information
3 Groups of Users
5 Types of Ratios
2014 BMI II ~ Managerial Accounting
Ratio Analysis
Standards of Comparison Historical Past
Industry Averages
Budget
2014 BMI II ~ Managerial Accounting
Ratio Analysis3 Different Users – different
uses1. Creditors
Secured Unsecured
2. Owners/Members3. Managers
2014 BMI II ~ Managerial Accounting
5 Classes of Ratios1. Liquidity: short-term
2. Solvency: long-term
3. Activity: productivity
4. Profitability: conversion
5. Operating: industry-specific
2014 BMI II ~ Managerial Accounting
Ratio Analysis: Liquidity
Current Ratio
Acid-test Ratio
Accounts Receivable Turnover
Average Collection Period
2014 BMI II ~ Managerial Accounting
Ratio Analysis: Solvency
Solvency Ratio
Debt-to-Equity
Number times Interest Earned
Fixed Charge Coverage
2014 BMI II ~ Managerial Accounting
Ratio Analysis: Activity
Inventory Turnover
Fixed Asset Turnover
Total Asset Turnover
Paid Occupancy
Rounds of Golf
2014 BMI II ~ Managerial Accounting
Ratio Analysis: Profitability
Gross Profit Margin
Operating Efficiency Ratio
Return on Assets
Return on Member’s Equity
2014 BMI II ~ Managerial Accounting
Ratio Analysis: Operating
Sales Mix Average Food Check Food Cost Percent Beverage Cost Percent Labor Cost Percent
Practice Problem #2
Analyze the financial health and financial performance of the Whistling Wind Country Club using all 5 classes of
ratios.
2014 BMI II ~ Managerial Accounting
Problem #2 Discussion
1. Liquidity2. Solvency3. Activity4. Profitability5. Operating
Grade the WWCC in each area
2014 BMI II ~ Managerial Accounting
Cost/Volume/Profit Analysis
C/V/P is an expression of the relationship between various costs, sales volume, and profit.
2014 BMI II ~ Managerial Accounting
C/V/P Assumptions
Fixed costs remain fixed.
Variable costs vary in direct proportion to volume.
Revenues vary in direct proportion to volume.
Mixed costs can be divided.
Joint costs can be allocated.
Only considers quantitative factors.
2014 BMI II ~ Managerial Accounting
C/V/P RelationshipsRevenue
Total Cost
Fixed Cost
Variable Cost
$
Volume
2014 BMI II ~ Managerial Accounting
C/V/P Equations Income = Revenue -
Expenses I = R - E Revenue = Price * Quantity
R = P * Q Expenses = Variable Cost +
Fixed E = (V* Q) + F
I = (P*Q) - [(V*Q) + F)]
2014 BMI II ~ Managerial Accounting
C/V/P Equations I = (P*Q) - [(V*Q) + F)]
I = Q*(P-V) - F
IBE + F = Q*CM
Q = F CM
Practice Problem #3
Analyze the decision to build a Wii Fitness Facility at the
Whistling Wind Country Club
2014 BMI II ~ Managerial Accounting
Problem #3 Discussion1. How many new fitness members are necessary for
the fitness facility to break even?2. If you could outsource the salaried supervisor to a
“Wii Pro” who charges for lessons and therefore lower the fixed costs by $40,000, how many members would be necessary (all other things stay the same) to break even?
3. If the board requires a 12% return on capital investments, how many new fitness facility memberships are necessary?
4. A study determines that at most 420 new members would join, what would the price of membership need to be?
Lease Accounting
“. . .an agreement conveying the right to use resources for
specified purposes for a limited time.”
2014 BMI II ~ Managerial Accounting
Advantages of Leases Conserve working capital Less “red tape” Easier to change equipment Less impact on financial
ratios Reduces need for capital
budget
2014 BMI II ~ Managerial Accounting
Disadvantages of Leases
No beneficial residual value
Higher cost
Additional costs of early termination
2014 BMI II ~ Managerial Accounting
Classification of Leases Operating Leases Capital Leases
Title transfer provision Bargain purchase provision Economic life provision Value recovery provision