Hospitality Accounting in Action Chapter 1 Hospitality Accounting in Action

◇ WHAT IS ACCOUNTING?  Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. Let’s take a closer look at these three activities.

Identifying economic events involves selecting the economic activities relevant to a particular organization.

The sale of goods and services by Pepsi Co, Inc, the providing of services by Disney, the payment of wages by The Club Corporation of America,

and the collection of ticket and broadcast money and the payment of expenses by major league sports teams are examples of economic events.

2. Once identified, economic events are recorded to provide a history of the organization’s financial activities. Recording consists of keeping a systematic,

chronological diary of events, measured in dollars and cents. In recording, economic events are also classified and summarized.

3. The identifying and recording activities are of little use unless the information is communicated to interested users. Financial information is communicated through accounting reports, the most common of which are called financial statements.

To make the reported financial information meaningful, accountants report the recorded data in a standardized way. Information resulting from similar transactions is accumulated and totaled.

For example, all sales transactions of Pepsi Co. are accumulated over a certain period of time and reported as one amount in the company’'s financial statements.

Such data are said to be reported in the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies a multitude of transactions and makes a series of activities understandable and meaningful.

◇ WHO USES ACCOUNTING DATA? 1. Internal Users Internal users of accounting information are managers who plan, organize, and run a business. These include foodservice anagers, housekeeping supervisors, rooms division managers, and others.

2. External Users There are several types of external users of accounting information. Investors (owners) use accounting information to make decisions to buy, hold, or sell stock. Creditors such as suppliers and bankers use accounting information to evaluate the risks of granting credit or lending money.

The information needs and questions of other external users vary considerably. Taxing authorities, such as the Internal Revenue Service (IRS), want to know whether the company complies with the tax laws.

Regulatory agencies, such as the Securities and Exchange Commission and the Federal Trade Commission, want to know whether the company is operating within prescribed rules. Customers are interested in whether a company will continue to honor product warranties and support its product lines.

Labor unions want to know whether the owners can pay increased wages and benefits. Economic planners use accounting information to forecast economic activity.

◇ DISTINGUISHING BETWEEN BOOKKEEPING AND ACCOUNTING  Many individuals mistakenly consider bookkeeping and accounting to be the same. This confusion is understandable because the accounting process includes the bookkeeping function.

However, accounting also includes much more. Bookkeeping usually involves only the recording of economic events. It is therefore just one part of the accounting process. In total, accounting involves the entire process of identifying, recording, and communicating economic events.

Accounting may be further divided into financial accounting and managerial accounting. Financial accounting is the field of accounting that provides economic and financial information for investors, creditors, and other external users.

Managerial accounting provides economic and financial information for managers and other internal users. Financial accounting is covered in this textbook.

◇ GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accounting profession has developed standards that are generally accepted and universally practiced.

This common set of standards is called generally accepted accounting principles (GAAP). These standards indicate how to report economic events.

◇ BASIC ACCOUNTING EQUATION Assets are the resources owned by a business. Claims of those to whom money is owed (creditors) are called liabilities. Claims of owners are called stockholders’ equity. Assets = Liabilities + Stockholders’' Equity

◇ THE ACCOUNTING CYCLE AND ◇ THE ACCOUNTING CYCLE AND THE FLOW OF INFORMATION 1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance

5. Journalize and post adjusting entries: Prepayments/Accruals 6. Prepare an adjusted trial balance 7. Prepare financial statements: Income statement, Retained earnings statement, Balance sheet 8. Journalize and post closing entries 9. Prepare a postclosing trial balance

◇ THE UNIFORM SYSTEMS OF ACCOUNTS AND FINANCIAL REPORTING   The Uniform System of Accounts for the Lodging Industry is currently in its ninth edition. Of the three systems, this is the oldest.

It was first developed by the Hotel Association of New York in 1926 and was known as the Uniform System of Accounts for Hotels. From the 1930s to the 1970s, when most hotels were smaller and motor hotels (motels) were popular, there were actually two systems: the Uniform System of Accounts for Hotels and the Uniform System of Accounts for Smaller Hotels.

� Weekly Homework Minimum    Exercises - odd  numbers