Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Chapter 4 A Brief Review of Financial Statements

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Objectives  Identify purpose and content of balance sheet  Identify purpose and content of income statement  Identify purpose and content of SCF

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Financial Statements 1. Reflect the score a. Income statement  net income b. Balance sheet  A = L + E c. SCF  Cash flow activities

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Net income is not cash a. Sales on account receivables 1. Sales occur today 2. Cash comes later b. Depreciation 1. Cash is expended today 2. Expense is recognized later Financial Statements (cont’d)

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Ba lanc e Sheet (Overview)  Reflects A = L + E  Current Assets  Investments  Property and Equipment  Current Liabilities  Long-term Debt  Owners’ Equity

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Balance Sheet The Sample Hotel December 31, 2011

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Liabilities and Owners’ Equity

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Liabilities and Owners’ Equity (cont’d)

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ The Income Statement (Overview)  Revenue  Undistributed operating expenses  Management fees  Fixed charges  Income taxes  Net income

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Sources of Revenue  Rooms  Food and beverage  Telecommunications  Rentals and other income

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Expenses  Operated department expenses  Payroll and related  Cost of sales  Other direct expenses  Undistributed operating expenses  A&G(General and administrative expense )  Marketing (including franchise fees)  POM(Property operations & maintenance)  Utility costs

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Expenses (cont’d)  Management Fees  Fixed Charges  Rent  Property taxes  Insurance  Depreciation  Interest  Income Taxes

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Income Statement The Sample Hotel For the year ended December 31, 2011

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Income Statement (cont’d)

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Statement of Cash Flows (SCF)  Cash from operating activities  Cash from investing activities  Cash from financing activities

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Flows from Income Statement and SCF  Income statement reflects income flows per GAAP  SCF reveals cash flows

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Statement of Cash Flow The Sample Hotel For the year ended December 31, 2011

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Statement of Cash Flow (cont’d)

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Statement of Retained Earnings  Reflects changes in retained earnings account during period  Major items:  Results of operation’s  Dividends declared

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ State of Retained Earnings The Model Hotel For the year ended December 31, 2011

Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ Summary  Financial statements are scoreboards  Four major statements  Balance Sheet: A = L + E  Income Statement: R – E = NI  Statement of Cash Flows: Cash in – cash out = Declare in cash  Statement of Retained Earnings: REB + NI – DD = REE