1. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Chapter 4 A Brief Review of Financial Statements

2. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Objectives  Identify purpose and content of balance sheet  Identify purpose and content of income statement  Identify purpose and content of SCF

3. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Financial Statements 1. Reflect the score a. Income statement  net income b. Balance sheet  A = L + E c. SCF  Cash flow activities

4. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 2. 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)

5. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Ba lanc e Sheet (Overview)  Reflects A = L + E  Current Assets  Investments  Property and Equipment  Current Liabilities  Long-term Debt  Owners’ Equity

6. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Balance Sheet The Sample Hotel December 31, 2011

7. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Liabilities and Owners’ Equity

8. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Liabilities and Owners’ Equity (cont’d)

9. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 The Income Statement (Overview)  Revenue  Undistributed operating expenses  Management fees  Fixed charges  Income taxes  Net income

10. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Sources of Revenue  Rooms  Food and beverage  Telecommunications  Rentals and other income

11. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 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

12. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Expenses (cont’d)  Management Fees  Fixed Charges  Rent  Property taxes  Insurance  Depreciation  Interest  Income Taxes

13. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Income Statement The Sample Hotel For the year ended December 31, 2011

14. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Income Statement (cont’d)

15. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Statement of Cash Flows (SCF)  Cash from operating activities  Cash from investing activities  Cash from financing activities

16. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Flows from Income Statement and SCF  Income statement reflects income flows per GAAP  SCF reveals cash flows

17. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Statement of Cash Flow The Sample Hotel For the year ended December 31, 2011

18. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Statement of Cash Flow (cont’d)

19. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 Statement of Retained Earnings  Reflects changes in retained earnings account during period  Major items:  Results of operation’s  Dividends declared

20. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 State of Retained Earnings The Model Hotel For the year ended December 31, 2011

21. Andrew, Damitio, Schmidgall Financial Management for the Hospitality Industry ©2007 Pearson Education, Inc. Upper Saddle River, NJ 07458 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