The Accounting Profession What It Is Accounting is a Profession Commercial/Financial Cost Tax Auditing Budgeting Government Users of Financial Information Owner Creditor Manager Government Public End Products Balance Sheet (Ch 2) Income Statement (Ch 3) Statement of Cash Flows (Ch 4) Hotel Revenue 64.1% Rooms 19.5% Food 5.1% Beverage 7.0% Other Departments 2.5% Telephone Department 1.8% Rentals and Other Income Hotel Costs and Expenses 44.9% Salaries, Benefits and Meals 30.0% Operating Expenses 11.0% Cost of Sales 5.5% Energy Costs 8.6% Taxes, Management Fees, Insurance The Hospitality Business Seasonal Business Fluctuating Demand Short Conversion Time - Food Selling Space - Now or Never Labor Intensive Intensive Fixed Asset Investment Key Driver in Hospitality Paid Occupancy Percentage # rooms sold / # rooms available Assume Hotel has 200 rooms and sells 300 rooms in June 300 / (200 * 30) = 300 / 6,000 = 5.00% Forms Of Business Organizations Sole Proprietorship Partnership Limited Partnership "C" Corporation "S" Corporation Limited Liability Company A Review of Accounting A Quick Summary Uniform System of Accounts Industry Uses a Uniform System of Accounting Lodging Operations, Restaurants, Clubs Generally Accepted Accounting Principles Provide Uniform Basis For Preparing Financial Statements AICPA FASB GAAP Principles of Accounting Cost Principle Business Entity Continuity of the Business Unit Unit of Measurement Principles of Accounting Objective Evidence Full Disclosure Consistency Matching Principles of Accounting Conservatism Materiality Cash Basis Accounting Accrual Basis Accounting Cash vs Accrual Cash Basis Accounting – Recognize revenue or expense when cash received Accrual Basis Accounting – Recognize revenue when earned – Recognize expense when incurred Fundamental Equation Assets = Liabilities + Owners Equity Assets = Liabilities + Permanent OE + Temporary OE Assets = Liabilities + Permanent OE + Revenue - Expenses Fundamentals of Accounting Balance Sheet Assets - Things Owned = Liabilities ( Obligations ) + Equity ( Residual Claims on Assets ) Fundamentals of Accounting Income Statement Revenues - Expenses = Net Income Temporary Accounts are Netted and Closed to Equity (retained earnings) Debits and Credits Debits on Left Credits on Right Debits Must Equal Credits Double Entry Bookkeeping Debits and Credits Debit does not mean increase or decrease Credit does not mean increase or decrease Normal Balances Asset - Debit Liability - Credit Equity - Credit Revenue - Credit Expense - Debit Normal Balances Other Types of Accounts Contra Assets - Credit – Accumulated Depreciation – Allowance for Bad Debt Contra Equity - Debit – Withdrawals – Treasury Stock Debit vs Credit Assets and Expenses have a normal balance of a Debit – To increase the balance Debit – To decrease the balance Credit Liabilities, Permanent OE and Revenues have a normal balance of a Credit – To increase the balance Credit – To decrease the balance Debit Adjusting Entries Needed to make transition from cash to accrual accounting Example: Pay $3,600 for a 3 year insurance policy in January 2000 Fiscal year is July - June Initial Entry (January 1, 2000) Debit Prepaid Insurance Credit 3,600 Cash 3,600 June 30, 2000 Entry Debit Insurance Expense Prepaid Insurance Prepaid Insurance Balance = $3,000 Credit 600 600 June 30, 2001 Entry Debit Insurance Expense Credit 1,200 Prepaid Insurance Prepaid Insurance Balance = $1,800 1,200 June 30, 2002 Entry Debit Insurance Expense Prepaid Insurance Prepaid Insurance Balance = $600 Credit 1,200 1,200 December 31, 2002 Entry Debit Insurance Expense Prepaid Insurance Prepaid Insurance Balance = $0 Credit 600 600 Elements of Ethics Privacy of Communication Conflict of Interests Political Contributions (U.S.) Company Records Gifts, Favors, Entertainment, Trips, Outings Elements of Ethics Use of Company Assets Anti-Trust Laws Relations With Competitors Relations With Suppliers Relations With Customers Ethics and Hospitality Accounting Is the Decision Legal? Is the Decision Fair? Does the Decision Hurt Anyone? Have I Been Honest With Those Affected? Ethics and Hospitality Accounting Can I Live With My Decision? Am I Willing to Publicize My Decision? What If Everyone Did What I Did?