‘Hospitality Accounting

2 main objectives:

_ Profit = income = earnings = Revenues (sales) – expenses (costs, rent, salaries, electricity)

Example:

Sales: 1000$

Expenses: 100$ rent / 50$ gas and electricity / 250$ salaries

- Total revenue: 1000$ because revenue = sales

- Profit: 600$ because profit = revenue – expenses = 1000$ - (100$ + 50$ + 250$)

If revenue > expenses : profit and if expenses > revenue : loss

_ Solvency = the ability to pay your debt ( debt = liabilities)

How do we pay the dept? you can pay dept by selling possessions (we should see if the possessions’
value is higher than the debt and is it is that means your company is solvent), those possessions are
called assets so assets should be > than liabilities meaning ownings should be > than owings.

If the dept meaning liabilities are higher or greater than the assets (for a great period of time) than
the company will go bankrupt.

For a company to be solvent : assets > liabilities

(!) Profit is NOT cash

Example:

Sales on credit: 1000$

Expenses: 200$

- Profit: 1000$ - 200$ = 800$ because profit = revenue (sales) – expenses

- Cash: (-200$) because the company still didn’t receive the cash

Balance sheet: It’s a statement that shows the solvency of a company.

There are two ways to finance your company: money you have in the bank, and loans

Inventory: The merchandise held for sale

While reading, put in front of the power point to not miss anything.

Chapter 1
Why do we study accounting? To study the business language, financial information, and to know
how reports are prepared.

What is business accounting?

What is fundamental of accounting?

- Provide accurate, useful, and timely financial information

- financial statements, budgets, and reports
- AICPA:
- Provide quantities information about economic entities to make decisions
 Bookkeeping: the initial phase of accounting, its function is to collect and record the business
transactions
 Accounting: supervising the bookkeeping functions/ prepare the financial statements.
Accountants do not eliminate jobs or reduce expenses. (a small restaurant pays
approximately 1000$ per year /an individual pays approximately 150$ per year)

The corporate accounting department: check the slides (teacher said not that important)

The accounting profession:

- Budgeting: (estimation for future expenses) = forecasting: (estimating for future sales)/
comparison against actual results/ variances analysis and their causes.
- Cost accounting: record, classify, allocate and report current and prospective costs/ control
operations.

The accounting profession:

- Tax accounting: preparing and filling tax forms, its purpose is to minimize taxes to be paid.
The two ways to pay less or avoid taxes legally are:
- depreciation: when you have more depreciation you have more expenses and thus less
taxes, so you avoid taxes by renewing your assets (buying new assets) (make more research
in this) (for an example: check picture on phone 25-09-2023 12:30)
- Loan money, meaning to have dept in your business.
- Internal auditing
- Accounting system design

The certified public accounting :

Influence of government and professional organizations: (we don’t need to know this slide)

Generally accepted accounting principles GAAP: check slides and make more research to understand:

Cost:

cost of car: 40 000

Market value of car: 62 000 (this could be for various reasons e.g. the seller doesn’t know the real
value of the car, or the seller needed to sell the car immediately…)
The car is still 40 000 even if the market value is more since 40 000 is the amount of money you have
paid

Going-concern principle: the business will continue indefinitely and continue operating instead of
being closed or sold.

Monetary unit principle: use one unit to measure the money

Business entity principles: the business is separate from the owner and other businesses (look it up)

Revenue recognition principle: when the merchandise is given or the service is made you need to
recognize this revenue when it is earned even if the cash has not yet been received:

For example you get an advanced payment for a service on October (the time for that service is until
December): there are no sales in October even if you have received the cash because the services
hasn’t been made yet, it will be made until December.

Matching Principle:

A car is an asset not an expense because it won’t only be used for one year, it will be used for a long
period of time.

Cash accounting vs accrual accounting:

Cash accounting: used by small businesses (check slide)

Accrual accounting: Transaction are recorded when they occur (doesn’t depend about payment but
about when it is accured) (in the slide it written revenues are recognized when earned, here, earned
means accured)

Business transaction: is an exchange of service or product for

- Purchases: you buy for cash or for promise to pay in the future (on credit or on account) (this
credit or account is called account payable which we can find the balance sheet in the
liabilities section)
- Sales: either you get paid cash or promise to pay later (on credit or on account) (the account
name is account receivable which we can find in the balance sheet in the asset section)

Cash is an asset in the balance sheet

Check the two examples in the slides

Every business transactions involves at least two accounts.

Equal amounts of debits and credits must be entered for each business transaction: Debit = Credit

Higher depreciation lowers taxes because you will have lower earnings

There are five elements in accounting:

- Assets / liabilities / equity : balance sheet

- Revenue / expenses : income statement

Assets = liabilities + equity (this is the accounting equation)

You buy a car 40 000, you can either pay with:

- Liabilities (loan/ dept)

- Equity (the owner’s money): Equity: the owner’s money that he or she puts into the business
(if an owner has 1 million dollars and only puts 200 thousand dollars into the business then,
the equity is 200 thousand dollars) in other words the owner’s financial contribution to the
business

There are 5 classifications of accounting: assets/ liabilities/ equity/ revenue/ expenses

Assets/ liabilities/ equity: balance sheet

Revenue/ expenses: income statement

MCQ: check a paper I probably have in my notebook somewhere.

Theoretical questions:

_What’s the difference between accounting and bookkeeping?: the bookkeeping is the initial phase
of accounting and the bookkeeper just records the business transactions, accountant supervises the
bookkeeper, prepares financial statements, analyses records…

_What are examples of external and internal of financial statement?:

- External uses: government, banks, owners, investors
- Internal uses: people inside the company like managers, officers, employees
_Definition of a business transaction?: is an exchange of service or product for cash or for promise to
pay
_What are the definitions of account receivable and account payable:
- Account payable: the business’s debt, example buy food from supplier and promise to pay
later
- Account receivable: the costumers debt, example a client buys clothes and promises to pay
later
_The two common financial statements and their typical content :
- income statement: revenue and expenses
- balance sheet: assets, liabilities, and equity

MCQ in power point , not sure where to find it but I made pics 9/10/2023 (12:10)
1_ d
2_ b
1_ b
2_ d

1_ b

2_ a

1_ a

2_ b because due to the matching principle the banquet hasn’t happened yet so the sales will be
recorded later after 6 months according to the question

check something about double entry

Example:

Sales: 100 000 cash

Expenses: 70 000 cash

Profit: 30 000

Taxes (30%): 9 000

Net profit: 21 000

Cash: 21 000

New assets 200 000 (20 000 each)

Sales: 100 000 + cash

Expenses: 70 000 - cash

Depreciation: 20 000

Profit: 10 000 (sales - expenses - depreciation)

Taxes (30%): 3000

Net profit: 7000 (profit - taxes)

Cash: 27 000 (sales - expenses - taxes)

In this scenario if the depreciation Is 40 000 (meaning 40 000 each year) then:

Profit: -10 000 (sales - expenses - depreciation)

Taxes(30%): 0

Net profit: -10 000

Chapter 2
Business formation, taxation, and insurance

There are three forms of business organizations:

- Proprietorship: business owned by 1 person, the most common form of business

organization because they are so easy to start, the owner is personally liable for the debt of
the business, all the business assets belong to the owner, the business pays no salary to the
owner, quickest, least expensive, business and owner are separate entities (however, legally
they are one entity because as mentioned before if the business has debt, the owner is
personally liable), business pays no income taxes(business tax rate are higher than individual
tax rate)
- Partnership: unincorporated business owned by two or more partners, a partner may be an
individual or a corporation, least common form but wildly used for professional practices,
unlimited liabilities for partners, income taxes of the business are paid by the proprietor of
each of the partner, partners are not paid a salary or wage, there are two types of partners:
 At least one general partner: responsible for the management, unlimited liability
 Any number of limited partners: do not participate in the management, are not
personally liable, passive inventors
- Corporation: a legal entity, having an existence separate and distinct from that of its owners,
those owners are called stockholders or shareholders, you can become an owner of a
corporation by buying shares from the stock market, the shareholders have only limited
liabilities because they are not responsible for the dept of the company, their only
responsibility is the money they invested, the income taxes paid by the corporation, it is
legally incorporated (don’t know what it means, look it up), the assets are owned by the
business, not the shareholders. (traditionally it tok 20/ 30 years for a business to become a
corporation, now
- When a business goes bankrupt who gets paid first?:
- Government: taxes
- Employees: salaries
- Suppliers and banks: debt

Articles of incorporation (look it up)

Authorized stock: lets say the company needs 10 million euros, the company can then sell 10 million
shares worths 1 euro each, or sell 20 million worth 0.50 euro each, or sell 5 million worth 2 euros
each…

Par value: an arbitrary amount assigned to each share or stock, it is the number of shared issued
timed the par value.

Capital stock: general term used to describe the shares of ownership in a corporation (capital: is the
money invested by the owner(s)) (issued stock: the shares that have been sold to investors)
there are two types of stocks:
- Common stock: owners of common stock usually have the following rights:
- right to receive dividends when they are declared by the board of directors
- right to vote for the board of directors and on certain important corporate issues. (for
example I own shares in google, that means that I can vote, though depending on the percentage of
my shares, my vote can be really insignificant)

I can skip the preferred stock slide (since we’ll go over it in detail in chapter 4)

Taxation of business income: (check slides)

- Partnership:
- Corporation:

Insuring the business: check slides (can skip through it)

- Liability insurance:
- Crime insurance:
- property insurance:
- business interruption insurance:

MCQ: look at a paper in the notebook: date 16/10/2023

Chapter 3
Financial statements all the financial issues of the business to allow potential investors to read their
financial statements to see if the business is profitable, the amount of dept…

There are three primary financial statements:

- Balance sheet: Describes where the enterprise stands at a specific date, or shows the
financial position of a business at a specific date. (one moment) (it is prepared at the end of
the year meaning 31 december)
- Income statement: depicts the revenue and expenses for a designated period of time, for
example for one year (usually for corporation) or one month (usually for small business).
- Statement of cash flows: depicts the sources and users of cash for a period of time, how cash
was collected and how it was used and spent (give income to owners(dividends), or buy new
assets)

Other than these three, there are two other financial statements:

- Statement of owner’s equity

- Statement of retained earnings: the income you leave in the company for future
reinvestment

Income statement: net income = revenue - expenses

Cost of goods sold:

Expense: cost of the goods sold: cost of sales: the purchase price: something used or consumed
(assets become expenses when they are used like electricity, and food is only an expense when it is
consumed and paid for, before consumption it is an asset in the inventory account)

Inventory:

Very important, in the exam: Calculate the gross profit = sales – cost of sales

Cost of sales: purchase price

Gross profit = sales – cost of sales

Sales – cost of sales = gross profit

Gross profit - operating expenses – fixed expense = net income

Revenue is not cash, and it is also not income: it is recognised when the service or goods are given or
delivered. You may or may not receive the cash

Cost of sales: Cost of merchandise used, cost of food sales, cost of beverage sales, cost of goods sold:
(net sales – cost of sales = gross profit or gross margin)

Operating expenses: salaries and wages(salaries, wages, overtime pay, bonus to employees…)/
employee benefits (employee meals, unemployment taxes, insurance premium, health insurance,
medical expenses…)
Salary usually every month for employees and wages are paid for workers (salaries and wages are
not the same thing)

Operating expenses: expenses to operate the business

Income before fixed charges and income taxes: to assess the effectiveness and efficiency of
management/ there are five fixed charges (not sure of there are more)

Net income: bottom line (income or loss)/ owner of proprietorship

Statement of owners’ equity (proprietorship):

Capital: contributed capital: capital stock initial money invested into the business in a proprietorship

Statement of owners’ equity (corporation)

Statement of retained earnings

Balance sheet: assets, liabilities, owner’s equity

Retained earnings goes in the equity section in the balance sheet (retained earnings is the income
you leave in the company for future investment)

Account receivable: the guest dept or sales on credit.

There are only two sections in equity in the balance sheet: capital stock and retained earnings.

There are current assets and non current assets

We can skip slide 17 number 33 (property and equipment)

There are current liabilities (to be paid in less then a year) and long-term liabilities

Statement of cash flow:

Investing activities: activity in relation of the sale or purchase of an asset (for example the cash for
buying or selling a chair)

Operating activities: Day to day operating activities (for example: selling goods to costuimers, paying
rent, paying for supplies…)

Financing activities: includes the cash effects of transactions with the owners and creditors
Chapter 4
Print a balance sheet for next week

Assets: economic resources that are owned by the business and are expected to benefit future
operations.

Liabilities: depts that represent negative future cash flows for the enterprise.

Owner’s equity: owner’s claims on the assets of the business.

Current assets: short term assets: will be converted into cash within one year maximum or the
operation cycle, whichever is longer. (cash, short term investments, account receivables, inventories,
prepaid expenses):

Cash: checks, debit and credit cards (fees and cash or account receivable), highly liquid investment
(this one is only in the US) (treasury bills US government), Certificate of deposit(banks))

Short term investment: Marketable securities, tradable securities, stocks and bonds, they will not
stay in the business

Account receivable: amount owed to a firm by its customers, non-bank credit cards, allowance for
doubtful accounts, notes receivable. (notes receivable: written or signed note that the customer will
pay later)

Inventories: stock of food and beverage merchandise held for resale guest supplies – office supplies –
cleaning supplies -… held for future use, food inventory – beverage inventory – gift shop inventory,
supplies of China – glassware – and silver: property and equipment.

Prepaid expenses: payment of cash, that is recorded as an asset because service or benefit will be
received in the future. Cash payment before expense recorded. Prepayments often occur in regard
to: insurance, advertising, rent. (those are the only prepaid expenses for a corporation I think)

Noncurrent assets: not expected to be converted to cash or consumed within one year or the
operating cycle, whichever is longer. (investments, property – plant - equipment, other assets)

Investments: short term investments are bonds and shares. Not used in the operations of the
business, includes both dept and equity securities of other corporations (bonds and shares), land
held for speculation.

Property – plant – equipment: are tangible, long lived, and used in the operations of the business
(fixed assets)/ includes land, buildings, equipment, machinery, China, glassware, silver, linen, and
uniforms/ reported at original cost less accumulated depreciation (or depletion for natural resources)
depreciation: (look for the definition) the decrease in value in the book