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Accounting is a ProfessionAccounting is a Profession
Commercial/FinancialCommercial/FinancialCostCostTaxTaxAuditingAuditingBudgetingBudgetingGovernmentGovernment
Users of Financial Users of Financial InformationInformation
OwnerOwnerCreditorCreditorManagerManagerGovernmentGovernmentPublicPublic
End ProductsEnd Products
Balance Sheet (Ch 2)Balance Sheet (Ch 2) Income Statement (Ch 3)Income Statement (Ch 3)Statement of Cash Flows (Ch 4)Statement of Cash Flows (Ch 4)
Hotel RevenueHotel Revenue
64.1% Rooms64.1% Rooms19.5% Food19.5% Food5.1% Beverage5.1% Beverage7.0% Other Departments7.0% Other Departments2.5% Telephone Department2.5% Telephone Department1.8% Rentals and Other Income1.8% Rentals and Other Income
Hotel Costs and ExpensesHotel Costs and Expenses
44.9% Salaries, Benefits and 44.9% Salaries, Benefits and MealsMeals
30.0% Operating Expenses30.0% Operating Expenses 11.0% Cost of Sales11.0% Cost of Sales 5.5% Energy Costs5.5% Energy Costs 8.6% Taxes, Management Fees, 8.6% Taxes, Management Fees,
InsuranceInsurance
The Hospitality BusinessThe Hospitality Business
Seasonal BusinessSeasonal Business Fluctuating DemandFluctuating Demand Short Conversion Time - FoodShort Conversion Time - Food Selling Space - Now or NeverSelling Space - Now or Never Labor IntensiveLabor Intensive Intensive Fixed Asset InvestmentIntensive Fixed Asset Investment
Key Driver in HospitalityKey Driver in Hospitality
Paid Occupancy PercentagePaid Occupancy Percentage
# rooms sold / # rooms available# rooms sold / # rooms available
Assume Hotel has 200 rooms and sells 300 Assume Hotel has 200 rooms and sells 300 rooms in Junerooms in June
300 / (200 * 30) = 300 / 6,000 = 5.00%
Forms Of Business Forms Of Business OrganizationsOrganizations
Sole ProprietorshipSole ProprietorshipPartnershipPartnershipLimited PartnershipLimited Partnership "C" Corporation"C" Corporation "S" Corporation"S" CorporationLimited Liability CompanyLimited Liability Company
Uniform System of Uniform System of AccountsAccounts
Industry Uses a Uniform System Industry Uses a Uniform System of Accountingof Accounting
Lodging Operations, Lodging Operations, Restaurants, ClubsRestaurants, Clubs
Generally Accepted Generally Accepted Accounting PrinciplesAccounting Principles
Provide Uniform Basis For Provide Uniform Basis For Preparing Financial StatementsPreparing Financial Statements
AICPAAICPAFASBFASBGAAPGAAP
Principles of AccountingPrinciples of Accounting
Cost PrincipleCost PrincipleBusiness EntityBusiness EntityContinuity of the Business UnitContinuity of the Business UnitUnit of MeasurementUnit of Measurement
Principles of AccountingPrinciples of Accounting
Objective EvidenceObjective EvidenceFull DisclosureFull DisclosureConsistencyConsistencyMatchingMatching
Principles of AccountingPrinciples of Accounting
ConservatismConservatismMaterialityMaterialityCash Basis AccountingCash Basis AccountingAccrual Basis AccountingAccrual Basis Accounting
Cash vs AccrualCash vs Accrual
Cash Basis AccountingCash Basis Accounting
–Recognize revenue or expense Recognize revenue or expense when cash receivedwhen cash received
Accrual Basis AccountingAccrual Basis Accounting
–Recognize revenue when earnedRecognize revenue when earned
–Recognize expense when incurredRecognize expense when incurred
Fundamental EquationFundamental Equation
Assets = Liabilities + Owners EquityAssets = Liabilities + Owners Equity Assets = LiabilitiesAssets = Liabilities
+ Permanent OE+ Permanent OE + Temporary OE+ Temporary OE
Assets = LiabilitiesAssets = Liabilities + Permanent OE+ Permanent OE
+ Revenue+ Revenue - Expenses- Expenses
Fundamentals of AccountingFundamentals of Accounting
Balance Sheet Balance Sheet Assets - Things OwnedAssets - Things Owned
= Liabilities ( Obligations )= Liabilities ( Obligations )+ Equity ( Residual Claims on + Equity ( Residual Claims on
Assets )Assets )
Fundamentals of AccountingFundamentals of Accounting
Income StatementIncome StatementRevenuesRevenues
- Expenses- Expenses= Net Income= Net Income
Temporary Accounts are Netted and Temporary Accounts are Netted and Closed to Equity (retained earnings)Closed to Equity (retained earnings)
Debits and CreditsDebits and Credits
Debits on LeftDebits on LeftCredits on RightCredits on RightDebits Must Equal Credits - Debits Must Equal Credits -
Double Entry BookkeepingDouble Entry Bookkeeping
Debits and CreditsDebits and Credits
Debit does not mean increase or Debit does not mean increase or decreasedecrease
Credit does not mean increase or Credit does not mean increase or decreasedecrease
Normal BalancesNormal Balances
Asset - DebitAsset - DebitLiability - CreditLiability - CreditEquity - CreditEquity - CreditRevenue - CreditRevenue - CreditExpense - Debit Expense - Debit
Normal BalancesNormal Balances
Other Types of AccountsOther Types of Accounts Contra Assets - CreditContra Assets - Credit
–Accumulated DepreciationAccumulated Depreciation
–Allowance for Bad DebtAllowance for Bad Debt Contra Equity - DebitContra Equity - Debit
–WithdrawalsWithdrawals
– Treasury StockTreasury Stock
Debit vs CreditDebit vs Credit
Assets and Expenses have a normal Assets and Expenses have a normal balance of a Debitbalance of a Debit– To increase the balance DebitTo increase the balance Debit– To decrease the balance CreditTo decrease the balance Credit
Liabilities, Permanent OE and Revenues Liabilities, Permanent OE and Revenues have a normal balance of a Credithave a normal balance of a Credit– To increase the balance CreditTo increase the balance Credit– To decrease the balance DebitTo decrease the balance Debit
Adjusting EntriesAdjusting Entries
Needed to make transition from Needed to make transition from cash to accrual accountingcash to accrual accounting
Example: Pay $3,600 for a 3 year Example: Pay $3,600 for a 3 year insurance policy in January 2000 insurance policy in January 2000 Fiscal year is July - June Fiscal year is July - June
Initial EntryInitial Entry(January 1, 2000)(January 1, 2000)
Debit Credit
PrepaidInsurance
3,600
Cash 3,600
June 30, 2000 EntryJune 30, 2000 Entry
Debit CreditInsuranceExpense 600
PrepaidInsurance 600
Prepaid Insurance Balance = $3,000
June 30, 2001 EntryJune 30, 2001 Entry
Debit Credit
InsuranceExpense
1,200
PrepaidInsurance 1,200
Prepaid Insurance Balance = $1,800
June 30, 2002 EntryJune 30, 2002 Entry
Debit Credit
InsuranceExpense
1,200
PrepaidInsurance 1,200
Prepaid Insurance Balance = $600
December 31, 2002 EntryDecember 31, 2002 Entry
Debit Credit
InsuranceExpense
600
PrepaidInsurance 600
Prepaid Insurance Balance = $0
Elements of EthicsElements of Ethics
Privacy of CommunicationPrivacy of CommunicationConflict of InterestsConflict of InterestsPolitical Contributions (U.S.)Political Contributions (U.S.)Company RecordsCompany RecordsGifts, Favors, Entertainment, Gifts, Favors, Entertainment,
Trips, OutingsTrips, Outings
Elements of EthicsElements of Ethics
Use of Company AssetsUse of Company AssetsAnti-Trust LawsAnti-Trust LawsRelations With CompetitorsRelations With CompetitorsRelations With SuppliersRelations With SuppliersRelations With CustomersRelations With Customers
Ethics and Hospitality Ethics and Hospitality AccountingAccounting
Is the Decision Legal?Is the Decision Legal? Is the Decision Fair?Is the Decision Fair?Does the Decision Hurt Anyone?Does the Decision Hurt Anyone?Have I Been Honest With Those Have I Been Honest With Those
Affected?Affected?
Ethics and Hospitality Ethics and Hospitality AccountingAccounting
Can I Live With My Decision?Can I Live With My Decision?Am I Willing to Publicize My Am I Willing to Publicize My
Decision?Decision?What If Everyone Did What I Did?What If Everyone Did What I Did?