Chapter 3 The Income Statement HFT 3431 Chapter 3 The Income Statement

Income Statement Statement of Earnings Profit and Loss Statement Statement of Operations Frequency - Daily, Weekly, Monthly, Quarterly, Annually

Income Statement Reports on a Period of Time Departmental Income Statements Uniform System of Accounts

Questions Answered How Profitable Was Business? What Were the Total Sales? How Much Was the Labor Cost? What Was Food Cost Percent?

Questions Answered Are Sales In(de)creasing? Are Expenses In(de)creasing? What Were Marketing Costs? What Percent of Sales Is Profit?

Elements of Income Statement Revenue - Sale of Goods and Services; Investment Income; Rental Income Expenses - Outflows to Produce Goods; Cost of Goods Sold; Labor; Controllable Expenses; Noncontrollable Expenses

Elements of Income Statement Other Gains and Losses - From Incidental Transactions; Acts of Nature Period Income or Loss - Add/Deduct To/From Equity

Elements of Income Statement Internal Users - Management External Users - Summary Statement

Uniform System of Accounts Standardized Accounting System Industry Driven Basic Formats Departmental Statement and Schedules

Uniform System of Accounts Explanations and Discussions Allows Comparison - Other Operations and Self Can Be Used by Any Size Operation

Uniform System of Accounts Property Level Designed Use Direct Operating Expense Based on Cost of Goods Sold, Direct Labor Expense, Direct Expenses

Contents of the Income Statement Operated Departments Net Revenues by Department Cost of Sales Payroll and Related See page 95 for sample

Contents of the Income Statement Other Direct Expenses Departmental Income – Net Department Revenues Less Departmental Expenses

Contents of the Income Statement Non Operated Departments Undistributed Operating Expenses Payroll and Related and Other Are Shown Separately

Contents of the Income Statement Administrative and General Data Processing Human Resources Transportation

Contents of the Income Statement Marketing Property Operations and Maintenance Energy Costs Income After Undistributed Operating Expenses

Contents of the Income Statement Other Expenses (Board Decisions) Management Fees Fixed Charges (Capacity Costs) Other Gains or Losses Sale of Property/Equipment

Income Statement Analysis Comparative Statements Horizontal Analysis Calculate Absolute Change (Dollar Difference) Calculate Relative Change (Percentage Difference) Investigate Significant Differences Internal Analysis

Horizontal Analysis Example

Income Statement Analysis Common Size Statements Vertical Analysis Total Revenue Equal 100% Each Expense Shown As Percentage of Total Compare to Industry, Like Businesses or Self

Vertical Analysis Example

Data Availability PKF Consulting - Trends in the Hotel Industry (U.S. and Worldwide) PKF Consulting - Clubs in Town and Country

Data Availability Arthur Andersen & Smith Travel Research - The Host Report - Hotel Operating Statistics NRA - Restaurant Industry Operations Report Local Hotel Organizations

Cost of Goods Sold Calc Beginning Inventory + Purchases = Goods Avail For Sale - Ending Inventory = Cost of Goods Consumed - Transfer Out - Employee meals + Transfer In = Cost of Goods Sold

Adjustments Intraunit transfers Interunit transfers Grease sales Steward sales Gratis to bars

Adjustments Promotion expenses Employee meals To General Manager “Comps”

Cost of Goods Sold Example Assume: Beginning Inv $10,000 Purchases $50,000 Ending Inv $25,000 Room Div Emp Meal $15,000 Transfer From Bar $1,000 Transfer to Banquets $1,500

Cost of Goods Sold Example $10,000 Beginning Inv $50,000 Purchases $60,000 Goods Avail Sale ($25,000) Ending Inv $35,000 Cost of Goods Consumed ($15,000) Room Div Emp Meal $1,000 Transfer From Bar ($1,500) Transfer to Banquets $19,500 Cost of Goods Sold

Cost of Food or Beverages Sold Food or beverage cost percent equals cost of goods sold divided by food or beverage sales What is reported to management?

Gain or Loss Calc Original Cost - Accumulated Depreciation = Book Value Sales Price - Book Value = Gain if positive = Loss if negative

Gain or Loss Example Assume Purchased Truck for $10,000 Accumulated Depr is $6,000 Sold Truck For $5,000

Gain or Loss Example $10,000 Purchase Price (6,000) Accum Depr 4,000 Book Value $5,000 Sales Price (4,000) Book Value 1,000 Gain (Since positive)

Key Items To Remember Revenues are listed Net of Allowances Cost of employee meals are part of that dept’s expenses not cost of food sold Taxes and Benefits considered as part of payroll expense See page 90 for the 14 Rooms Division Major Other Expenses

Summary & Departmental Schedules See pages 130 - 150 regarding Summary Rooms Food & Beverage Telecommunications Rentals & Other Income Administrative & General Maintenance Sales & Marketing Utilities Other Departmental Statements