HFT 2401

Chapter 6The Balance Sheet

Questions Answered by Balance Sheet

Amount of Cash on Hand?

What is the Total Debt?

What is Funding Mix?

How Much is Owed to the Hotel?

Questions Answered by Balance Sheet

What are the Tax Liabilities?

Can Current Debt be Paid?

What is the Financial Strength?

How Much have Stockholders Invested in the Assets?

Purposes of the Balance Sheet

The Income Statement: Pertains to a period of time

The Balance Sheet – Pertains to a given date

Primarily use by creditors and investors

Used quite a bit for various ratio analysis to monitor the overall “health” of the business

Liquidity

The ability of the operation to convert assets to cash to meet current liabilities

Current Ratio- Used by creditor and investors

Current Assets / Current Liabilities

s/b around 2 : 1

Balance Sheet Limitations

Does Not Reflect Current Values of Assets (Booked According to Cost Principle)

Does Not Include Some Things of Value Such as Personnel, Location, Customer Base, Goodwill

Numbers are of a Static Nature

Balance Sheet Limitations

Becomes Quickly Outdated

Some Account Balances are Estimates Such as Depreciation and Estimates for Uncollectibles – Based on Best Judgment

Balance Sheet - The Statement of Financial Position

Assets = Liabilities + Equity

Statement of Assets, Liabilities, and Owners’ Equity at a Point in Time

Balance Sheet - The Statement of Financial Position

AssetsCurrent AssetsNoncurrent ReceivablesInvestmentsProperty and EquipmentOther Assets

Balance Sheet - The Statement of Financial Position

LiabilitiesCurrent LiabilitiesLong Term DebtDeferred Income TaxesCommitments / ContingenciesOther Long-Term Liabilities

Balance Sheet - The Statement of Financial Position

Owners’ EquityCapital StockAdditional Paid In CapitalRetained EarningsTreasury Stock

Balance Sheet Formats and Structure

Account Format - Assets on Left and Liabilities and Equity on Right (p. 205)

Report Format - Assets First Followed by Liabilities and Equity (p. 206)

Balance Sheet Formats and Structure

Current Assets - Converted to Cash or Used in Operation in One Year or Normal Operating Cycle

Listed in Order of Liquidity

Balance Sheet Formats and Structure

Cash (All Forms) Marketable Securities Receivables Inventories Prepaid Expenses

Noncurrent Assets

Noncurrent Receivables - not expected to be collected within one year - owners are shown separate

Investments - securities, land not in use, and affiliate advances not to be collected within one year

Noncurrent Assets

Property and Equipment - Fixed Assets, Capital Leases - Less accumulated depreciation

Smallwares - New USOA Recommends to Expense or Write off Over 3 Years

Noncurrent Assets

Other Assets - Deferred Charges, Security Deposits

Preopening Expenses - New USOA Recommends to Expense in Current Period

Other Assets

Goodwill Cash Surrender Value of Life Insurance Deferred Charges Possibly Deferred Income Taxes

Balance Sheet Formats and Structure

Current Liabilities - Obligations expected to be Satisfied in One Year or Normal Operating Cycle

Current Liability Presentation

Payables Advance Deposits Current Maturities of Long Term Debts Dividends Payable Income Taxes Payable

Long Term Liabilities Obligations Beyond One Year Notes Payable Mortgages Payable Bonds Payable Capitalized Lease Obligations Possibly Deferred Income Taxes

Owners’ Equity Preferred Stock, Par @ $$$ Shares Authorized Shares Issued Common Stock, Par @ $$$ Shares Authorized Shares Issued

Owners’ Equity

Treasury Stock Additional Paid in Capital Retained Earnings

Owners’ Equity

Sole Proprietorship Capital Partnership - Show Each Owner’s Capital Withdrawal Accounts

Footnotes

Significant Accounting Policies Accounts and Notes Receivable Inventories Investments

Footnotes

Property and Equipment Current Liabilities Long Term Debt Capital Stock Employee Benefit Plans

Footnotes

Leases Segments of Business Supplemental Financial Information Commitment/Contingent Liability Income Taxes

Balance Sheet Analysis Common Size Statements or Vertical Analysis Total Assets Equal 100% Total Liabilities and Equity Equals 100% Each Individual Account is Shown as a Percentage

of the Total Assets Compare to Industry, Like Businesses or Self

Balance Sheet AnalysisAssetsCash 10,000 10%A/R 20,000 20%Building 70,000 70% Total Assets 100,000 100%

Liabilities & EquityLiabilitiesAccounts Payable 10,000 10%Mortgage Payable 80,000 80%Owners Equity 10,000 10% Total Liab. & Equity 100,000 100%

Homework Chapter 6

Problem 3 Problem 4 Problem 7