Lecture 2

Financial Reporting

Copyright © 2007 by John Wiley

& Sons, Inc. All rights reserved
 Types of Accounting
Financial Accounting
• Focuses on financial
statements
• Must present:
– financial condition of
the company
– operating results
Managerial Accounting
• Provide timely operating
results
• Focuses on:
– Revenues and expenses
– Maximizing operating
performance
 Accounting Standards
• Develop Standards
– Financial Accounting Standards Board
(FASB)
– Securities and Exchange Commission
(SEC)
• Generally Accepted Accounting
Principles (GAAP)
– Govern all accounting and financial reporting
 Accounting Principles
• Cost Principle
– All transactions must be recorded at cost
• Full Disclosure Principle
– Events that could impact a company’s financial position
should be reflected on financial statements or footnotes
• Revenue Recognition Principle
– Revenues should be recorded in the month they are
earned

Copyright © 2007 by John Wiley

& Sons, Inc. All rights reserved
 Accounting Principles cont.
• Matching Principle
– All expenses incurred in generating a revenue should
be recorded in the period the revenue is earned
• Monetary Unit Principle
– Only transactions that can be expressed in terms of
money can be shown on a company’s financial
statements
• Economic Entity Principle
– Separates the dealings of a business from the private
dealings of its owners
 Accounting Principles cont.
• Going Concern Principle
– Requires businesses to assume they will continue to
operate long into the foreseeable future
• Time Period Principle
– The company must set specific time periods for
measuring its financial results
• Materiality Principle
– Significant revenues or expenses should have thier
own account on the income statement
 Income Statement
• Presents operating results over a specific period of time
• Sections of the income statement:
– Revenues or Sales
– Operating Expenses
• For hotel properties:
– Departmental expenses
– Unallocated expenses
– Capital Expenses or Fixed Costs
– Net Income or Profit and Loss
 Sample Income Statement
Sample Restaurant Operating (Controllable) Expenses:

Income Statement Salaries and Wages $ 352,811

For the month ended June 30, 2008 Employee Benefits 105,843

Revenues: Direct Operating Expenses 68,286

Food $ 890,000 Marketing 39,834

Beverage 220,000 Utilities 44,386

Others 28,100 Administration & General 28,453

Total Revenues $ 1,138,100 Repairs and Maintenance 25,038

Music and Entertainment 31,867

Cost of Sales: Total Operating Expenses $ 696,517

Food $ 320,400

Beverage 48,400 Operating Income $ 57,328

Others 15,455

Total Cost of Sales $ 384,255 Other (Non-controllable) Expenses:

Rent $ 8,000

Gross Profit: Depreciation 20,470

Food $ 569,600 Interest 4,500

Beverage 171,600 Total Non-controllable

Expenses $ 32,970
Others 12,645

Total Gross Profit $ 753,845

Income Before Income Taxes $ 24,358
 Balance Sheet
• Provides a snapshot of a company’s financial position
• Categories of accounts:
– Assets
• Current Assets
• Fixed Assets
– Liabilities
• Current Liabilities
• Long Term Liabilities
– Equity

Assets = Liabilities + Equity

 Sample Balance Sheet
Danforth's Hotel

Balance Sheets

As of December 31

2007 2008 2007 2008

Cash $ 8,000 $ 12,560 Accounts Payable $ 15,000 $ 12,460
Accounts Receivable $ 2,000 $ 4,000 Accrued Payroll $ 7,500 $ 8,000
Marketable Securities $ 6,000 $ 6,000 Accrued Taxes $ 8,560 $ 5,500
Inventory $ 13,150 $ 15,000 Total Current Liabilities $ 31,060 $ 25,960
Prepaid Rent $ 10,000 $ 13,500

Total Current Asset $ 39,150 $ 51,060 Long Term Debt $ 22,500 $ 15,000

Owner's Equity $ 31,120 $ 40,620

Furniture, Fixture & Equipment (FF&E) $ 8,560 $ 17,500 Retained Earnings $ 10,000 $ 17,980
Accumulated Depreciation (FF&E) $ (3,030) $ (4,000) Total Owner's Equity $ 41,120 $ 58,600
Building $ 20,000 $ 20,000

Long term Investments $ 30,000 $ 15,000 Total Liabilities and Owner's Equity $ 94,680 $ 99,560
Long Term Assets $ 55,530 $ 48,500

   

Total Assets $ 94,680 $ 99,560

 Statement of Cash Flow
• Three sections:
– Cash Flow from Operations
– Cash Flow from Investing Activities
– Cash Flow from Financing Activities
 Sample Statement of Cash Flow
Danforth's Hotel

Statement of Cash Flow

For the Year Ended December 31, 2008

Cash flows from investing activities:

Purchase of FF&E $ (8,940.00)

Cash flows from operations:
Sale of long term investments $15,000.00

Net Income $ 7,980.00 $ 6,060.00

Increase in depreciation $ 970.00

Cash flow from financing activities:
Increase in accounts receivables $ (2,000.00) Payment of long term debt $ (7,500.00)

Increase in inventory $ (1,850.00) Increase in Owners' equity $ 9,500.00

$ 2,000.00
Increase in prepaid rent $ (3,500.00)
Total cash flows $ 4,560.00
Decrease in account payable $ (2,540.00)

Increase in accrued payroll $ 500.00

Beginning cash balance $ 8,000.00
Decrease in accrued taxes $ (3,060.00)
Add changes in cash $ 4,560.00

$ (3,500.00) = Ending cash balance $12,560.00

 Management Reports
• Daily Revenue Report
• Daily Payroll Cost Report
• Rooms Revenue Forecast
• Food and Beverage Menu Abstract
• Accounts Receivable Aging Schedule
 
Daily Revenue Report
ALL SPORTS RESORT

 
As of Friday, 11/10/2008
 
  Today   KEY METRICS Period-to-Date
Actual Budget Last Year   Actual Budget Last Year

70.3% 90.4% 91.8% TOTAL OCCUPANCY % 70.4% 80.0% 72.2%

76.8% 91.2% 92.5% AVAILABLE OCCUPANCY % 76.7% 80.6% 73.4%
391 391 391 TOTAL ROOMS 10,948 10,948 10,948
275 353 359 ROOMS SOLD 7,706 8,753 7,900

279 357 362 OCCUPIED ROOMS 7,818 8,835 7,971

4 3 4 COMPLIMENTARY ROOMS 112 82 74
112 34 28 VACANT ROOMS 3,130 2,113 2,974

358 388 388 AVAILABLE ROOMS 10,052 10,866 10,758

46.40 77.83 65.42 REVPAR 65.97 73.29 67.78
248 N/A 267 ARRIVALS 4,382 N/A 4,382
122 N/A 218 DEPARTURES 4,149 N/A 4,087

522 N/A 636 GUESTS 9,482 N/A 9,734

46 78 136 ROOMS SOLD-Transient 3,243 4,297 4,212
172 220 183 ROOMS SOLD-Group 3,131 2,870 2,365

57 59 39 ROOMS SOLD-Contract 1,332 1,586 1,335

85.61 111.06 81.29 AVERAGE RATE- Transient 117.97 111.06 113.44
66.14 85.41 72.09 AVERAGE RATE- Group 87.04 85.40 89.72
49.23 49.34 47.18 AVERAGE RATE- Contract 48.57 49.34 49.00
 Daily Payroll Cost Report
Daily Payroll Report
Florencia Hotel and Conference Center
Date: 6/5/2008

Daily Month-to-Date
Rooms Regular Overtime Total Payroll $ % Regular Overtime Hours Payroll $ Payroll % Budgeted %

Front Desk 38.10 0.00 38.10 $565.79 2.10% 671.98 1.67 673.65 $9,930.64 3.99% 3.49%

Reservations 13.03 0.00 13.03 $206.70 0.77% 269.27 14.66 283.93 $4,131.34 1.66% 1.74%

Guest Services 22.03 0.00 22.03 $252.39 0.94% 338.09 15.84 353.93 $4,412.27 1.77% 1.98%

Housekeeping 85.70 0.00 85.70 $905.15 3.35% 1,685.39 125.35 1,810.74 $19,480.01 7.82% 9.50%

Management 0.00 0.00 0.00 $0.00 0.00% 0.00 0.00 0.00 $0.00 0.00% 0.30%

Total Rooms 158.86 0.00 158.86 $1,930.03 7.15% 2,964.73 157.52 3,122.25 $37,954.26 15.24% 16.70%

Daily Month-to-Date Budget

Rooms Regular Overtime Total Payroll $ Cost/Room Regular Overtime Hours Payroll $ Cost/Room Cost/Room

Front Desk 38.10 0.00 38.10 $565.79 $3.93 671.98 1.67 673.65 $9,930.64 $6.23 $5.29

Reservations 13.03 0.00 13.03 $206.70 $1.44 269.27 14.66 283.93 $4,131.34 $2.59 $2.64

Guest Services 22.03 0.00 22.03 $252.39 $1.75 338.09 15.84 353.93 $4,412.27 $2.77 $3.00

Housekeeping 85.70 0.00 85.70 $905.15 $6.29 1,685.39 125.35 1,810.74 $19,480.01 $12.23 $14.43

Management 0.00 0.00 0.00 $0.00 $0.00 0.00 0.00 0.00 $0.00 $0.00 $0.45

Total Rooms 158.86 0.00 158.86 $1,930.03 $13.40 2,964.73 157.52 3,122.25 $37,954.26 $23.83 $25.36
 Rooms Revenue Forecast

FORECAST: as of 11/30/08

City: Los Angeles

Property: Huntington - Airport

# Rooms: 86

Division: Rooms Huntington Los Angeles Airport

12/10/00
12-Day Forecast Report 12/1/08 12/2/08 12/3/08 12/4/08 12/5/08 12/6/08 12/7/08 12/8/08 12/9/08 8 12/11/08 12/12/08

Avail Rooms 86 86 86 86 86 86 86 86 86 86 86 86

Forecast # 55 53 26 25 36 48 46 53 53 65 23 23

Forecast Occupancy % 63.95% 61.63% 30.23% 29.07% 41.86% 55.81% 53.49% 61.63% 61.63% 75.58% 26.74% 26.74%

Net Rooms Revenues 6215 5313 2653 2724 4050 5272 4741 5313 5157 6153 2300 2473

Average Rate $113.00 $ 100.25 $ 102.04 $ 108.96 $ 112.50 $ 109.83 $ 103.07 $ 100.25 $ 97.30 $ 94.66 $ 100.00 $ 107.52
 Food and Beverage Menu Abstract

        Food Menu Abstract  

  Date: January-March, 2008

Restaurant: Mexicana Cantina     Meal Period: Lunch  

                 

Menu Item Name Number Menu Item Item Item Menu Menu Menu

  Sold Mix Food Selling CM Costs Revenues CM

  (MM) % Cost Price (E - D) (D * B) (E * B) (F * B)

Bean, Cheese and Jalapeno Nachos 170 1.21% $2.44 $7.25 $4.81 $414.80 $1,232.50 $817.70

Beef, Bean, Cheese and Jalapeno Nachos 180 1.29% $2.78 $8.50 $5.72 $500.40 $1,530.00 $1,029.60

Chicken Fajita, Bean, Cheese and Jalapeno Nachos 222 1.59% $2.83 $9.95 $7.12 $628.26 $2,208.90 $1,580.64

Beef Fajita, Bean, Cheese and Jalapeno Nachos 253 1.81% $3.28 $9.95 $6.67 $829.84 $2,517.35 $1,687.51

Cheese Quesadillas 195 1.39% $1.64 $7.75 $6.11 $319.80 $1,511.25 $1,191.45

Chicken Fajita Quesadillas 286 2.04% $2.02 $8.95 $6.93 $577.72 $2,559.70 $1,981.98

Beef Fajita Quesadillas 259 1.85% $2.48 $8.95 $6.47 $642.32 $2,318.05 $1,675.73

Shrimp and Scallop Quesadillas 158 1.13% $3.82 $11.50 $7.68 $603.56 $1,817.00 $1,213.44

Shrimp Quesadillas 176 1.26% $3.44 $11.50 $8.06 $605.44 $2,024.00 $1,418.56

Spinach Quesadillas 125 0.89% $1.83 $8.50 $6.67 $228.75 $1,062.50 $833.75

Mixed Vegetable Quesadillas 91 0.65% $1.75 $8.50 $6.75 $159.25 $773.50 $614.25

Mixed Vegetable Queso Flameado 37 0.26% $1.24 $7.50 $6.26 $45.88 $277.50 $231.62
 Accounts Receivable Aging
Schedule

Aging Schedule for Hanover Country Club

Members Total Number of Days Past Due
1-30 31-60 61-90 Over 90
C. DeCarlo $200 $200

T. Vangard $450 $450

J. Samuel $100 $100

F. Engel $320 $320

M. Pratel $335 $335

M. Morgan $600 $600

Others $26,875 $14,000 $10,000 $1,000 $200 1,675

Total $28,880 $14,200 $10,450 $1,600 $535 $2,095
Estimated uncollectible 1.5% 2.0% 10% 20% 40%

Total Bad Debts $1,527 $213 $209 $160 $107 $838

 Quiz
1. Differentiate the following FS and their significance as
accounting reports.
Income Statement
Balance Sheet
Cash Flow

2. Differentiate Financial from Managerial Accounting.

3. Explain the following Accounting Principles.
Going Concern principle
Full Disclosure principle
Materiality principle
Economic entity principle
Revenue recognition report

Copyright © 2007 by John Wiley

& Sons, Inc. All rights reserved