HFT 2403HFT 2403

Chapter 6Chapter 6

The Balance SheetThe Balance Sheet

Questions Answered by Questions Answered by Balance SheetBalance Sheet

Amount of Cash on Hand?Amount of Cash on Hand? What is the Total Debt?What is the Total Debt? What is Funding Mix?What is Funding Mix? How Much is Owed to the Hotel?How Much is Owed to the Hotel?

Questions Answered by Questions Answered by Balance SheetBalance Sheet

What are the Tax Liabilities?What are the Tax Liabilities? Can Current Debt be Paid?Can Current Debt be Paid? What is the Financial Strength?What is the Financial Strength? How Much have Stockholders How Much have Stockholders

Invested in the Assets?Invested in the Assets?

Purposes of the Balance Purposes of the Balance SheetSheet

The Income Statement: Pertains to a The Income Statement: Pertains to a period of timeperiod of time

The Balance Sheet – Pertains to a given The Balance Sheet – Pertains to a given datedate

Primarily use by creditors and investorsPrimarily use by creditors and investors Used quite a bit for various ratio Used quite a bit for various ratio

analysis to monitor the overall “health” analysis to monitor the overall “health” of the businessof the business

LiquidityLiquidity

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

Current Ratio- Used by creditor and Current Ratio- Used by creditor and investorsinvestors Current Assets / Current LiabilitiesCurrent Assets / Current Liabilities

s/b around 2 : 1s/b around 2 : 1

Balance Sheet LimitationsBalance Sheet Limitations

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

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

Numbers are of a Static NatureNumbers are of a Static Nature

Balance Sheet LimitationsBalance Sheet Limitations

Becomes Quickly OutdatedBecomes Quickly Outdated Some Account Balances are Some Account Balances are

Estimates Such as Depreciation and Estimates Such as Depreciation and Estimates for Uncollectibles – Based Estimates for Uncollectibles – Based on Best Judgmenton Best Judgment

Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial

PositionPosition

Assets = Liabilities + EquityAssets = Liabilities + Equity Statement of Assets, Liabilities, and Statement of Assets, Liabilities, and

Owners’ Equity at a Point in TimeOwners’ Equity at a Point in Time

Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial

PositionPosition

AssetsAssets

Current AssetsCurrent Assets

Noncurrent ReceivablesNoncurrent Receivables

InvestmentsInvestments

Property and EquipmentProperty and Equipment

Other AssetsOther Assets

Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial

PositionPosition

LiabilitiesLiabilities

Current LiabilitiesCurrent Liabilities

Long Term DebtLong Term Debt

Deferred Income TaxesDeferred Income Taxes

Commitments / ContingenciesCommitments / Contingencies

Other Long-Term LiabilitiesOther Long-Term Liabilities

Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial

PositionPosition

Owners’ EquityOwners’ Equity

Capital StockCapital Stock

Additional Paid In CapitalAdditional Paid In Capital

Retained EarningsRetained Earnings

Treasury StockTreasury Stock

Balance Sheet Formats and Balance Sheet Formats and StructureStructure

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

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

Balance Sheet Formats and Balance Sheet Formats and StructureStructure

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

Listed in Order of Liquidity Listed in Order of Liquidity

Balance Sheet Formats and Balance Sheet Formats and StructureStructure

Cash (All Forms)Cash (All Forms) Marketable SecuritiesMarketable Securities ReceivablesReceivables InventoriesInventories Prepaid ExpensesPrepaid Expenses

Noncurrent AssetsNoncurrent Assets

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

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

Noncurrent AssetsNoncurrent Assets

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

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

Noncurrent AssetsNoncurrent Assets

Other Assets - Deferred Charges, Other Assets - Deferred Charges, Security DepositsSecurity Deposits

Preopening Expenses - New USOA Preopening Expenses - New USOA Recommends to Expense in Current Recommends to Expense in Current Period Period

Other AssetsOther Assets

GoodwillGoodwill Cash Surrender Value of Life Cash Surrender Value of Life

InsuranceInsurance Deferred ChargesDeferred Charges Possibly Deferred Income TaxesPossibly Deferred Income Taxes

Balance Sheet Formats and Balance Sheet Formats and StructureStructure

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

Current Liability Current Liability PresentationPresentation

PayablesPayables Advance DepositsAdvance Deposits Current Maturities of Long Term Current Maturities of Long Term

DebtsDebts Dividends PayableDividends Payable Income Taxes PayableIncome Taxes Payable

Long Term LiabilitiesLong Term Liabilities

Obligations Beyond One YearObligations Beyond One Year Notes PayableNotes Payable Mortgages PayableMortgages Payable Bonds PayableBonds Payable Capitalized Lease ObligationsCapitalized Lease Obligations Possibly Deferred Income TaxesPossibly Deferred Income Taxes

Owners’ EquityOwners’ Equity

Preferred Stock, Par @ $$$Preferred Stock, Par @ $$$ Shares AuthorizedShares Authorized Shares IssuedShares Issued Common Stock, Par @ $$$Common Stock, Par @ $$$ Shares AuthorizedShares Authorized Shares IssuedShares Issued

Owners’ EquityOwners’ Equity

Treasury StockTreasury Stock Additional Paid in CapitalAdditional Paid in Capital Retained EarningsRetained Earnings

Owners’ EquityOwners’ Equity

Sole Proprietorship CapitalSole Proprietorship Capital Partnership - Show Each Owner’s Partnership - Show Each Owner’s

CapitalCapital Withdrawal AccountsWithdrawal Accounts

FootnotesFootnotes

Significant Accounting PoliciesSignificant Accounting Policies Accounts and Notes ReceivableAccounts and Notes Receivable InventoriesInventories InvestmentsInvestments

FootnotesFootnotes

Property and EquipmentProperty and Equipment Current LiabilitiesCurrent Liabilities Long Term DebtLong Term Debt Capital StockCapital Stock Employee Benefit PlansEmployee Benefit Plans

FootnotesFootnotes

LeasesLeases Segments of BusinessSegments of Business Supplemental Financial InformationSupplemental Financial Information Commitment/Contingent LiabilityCommitment/Contingent Liability Income TaxesIncome Taxes

Balance Sheet AnalysisBalance Sheet Analysis Common Size Statements or Common Size Statements or Vertical Vertical

AnalysisAnalysis Total Assets Equal 100%Total Assets Equal 100% Total Liabilities and Equity Equals 100%Total Liabilities and Equity Equals 100% Each Individual Account is Shown as a Each Individual Account is Shown as a

Percentage of the Total AssetsPercentage of the Total Assets Compare to Industry, Like Businesses or Compare to Industry, Like Businesses or

SelfSelf

Balance Sheet AnalysisBalance Sheet Analysis

AssetsAssetsCashCash 10,000 10,000 10%10%A/RA/R 20,00020,000 20%20%BuildingBuilding 70,000 70,000 70%70% Total AssetsTotal Assets 100,000 100% 100,000 100%Liabilities & EquityLiabilities & EquityLiabilitiesLiabilitiesAccounts Payable 10,000Accounts Payable 10,000 10%10%Mortgage Payable 80,000Mortgage Payable 80,000 80%80%Owners EquityOwners Equity 10,000 10,000 10%10% Total Liab. & EquityTotal Liab. & Equity 100,000100,000 100%100%

Homework Chapter 6Homework Chapter 6

Problem 3Problem 3 Problem 4Problem 4 Problem 7Problem 7