1. Agenda Quiz – Chapters 1 through 3 Chapter 4 – The Income Statement
Homework – P & L Report

2. Foodservice Financial Basics Week 3
Chapter 4 – The Income Statement

3. Objectives Upon completion of this unit, each student will be able to:
Understand the role and functions of the Income Statement.
Understand the profit or loss from the Income Statement.
Prepare a Profit & Loss report based on sales and cost information.

4. The Income Statement
More commonly know as the “P&L” (Profit and Loss Statement) and also know as an Operating Statement
Details the Revenue – Expenses = Profit (or loss) for a specific time period…. Usually each month
Compares these categories against budget
The P&L gives you a clear picture of how well the restaurant is operating (or how poorly it is operating)

5. The P&L Answers these questions:
What is the amount of revenue achieved for the period?
What is the level of expense being incurred for the period?
What was the food cost and beverage cost, as a dollar figure and as a percentage of sales?
Were payroll costs kept in line with the budget?
How much $$$ was spent on advertising, rent and other overhead activities?
What was the tax expense for the period?
What is the amount of profit being achieved for the period?

6. Who is interested in this report?
Managers
Owners
Investors
Others, including creditors, lenders and employees

7. Steps to prepare P&L Report
Determine time period for the report
Calculate total sales
Calculate total costs
Subtract total costs from total sales
REVENUE – EXPENSES = PROFIT

8. Responsibility and Users
Who would be responsible for preparing this report?
Who are primary users of this report?
Responsibility accounting: Revenues and expenses reported separately for separate areas of responsibility
Uses:
To report sales and expense history
To report sales and expense forecasts
To report sales and expense actual results
To report sales and expense for a future period

9. Revenue
Inflows of assets that result from the sale of products and services
Interchangeable terms: income, revenue, sales
Assets can be in the form of cash, check, credit card or promise to pay (receivables)
Recognized:
at the point of sale
when the earnings process is completed
when an exchange has taken place
Separate by category to identify contribution

10. Revenue Sources Distinct dining areas Banquets Catering
Drive – through
Carryout
Delivery
Lounge or bar
Bakery
Gift Shop
Gift certificates and gift cards
Merchandise such as t-shirts, caps, etc

11. Percentages
Sales contributed by ÷ Total = Sales Revenue source Sales Percentage

13. Expenses
Expenses – Costs incurred by the restaurant to provide food and beverage products and services to the guests.
Direct Expenses- Expenses that are closely related to the products and services provided to the guests.
Indirect Expenses- Costs include depreciation, interest expense, property taxes, and rent expense.

14. Expenses Also referred to as Cost of Sales in our industry
Most managers are interested in knowing their food cost percentage, their beverage cost percentage and their overall cost of sales percentage…….WHY
How do you do this???

15. Expenses

17. Net Income
Net income as reflected in the restaurants P&L, occurs when revenues exceed expenses.
Gains- are increases in equity that do not result from revenues or investments by owners.
i.e. Selling a piece of equipment or another investment at a profit.
Losses- are decreases in equity that do not result from expenses or distribution to owners.
i.e. selling a piece of equipment at a loss, or experiencing a natural disaster such as a flood or tornado.

18. Uniform System of Accounts
An accounting system including financial statement formats and dictionaries of financial terms developed specifically for the restaurant industry, which can be used to drive the accounting system for a specific restaurant.
National Restaurant Association & Deloitte & Touche, LLC produce annual report on statistics

19. Sample Income Statement Sample Income Statement(1)
Sample Income Statement Sample Income Statement(1).xls Explanation of Terms Explanation of Terms[1].pdf

20. Format for Income Statement
Sales
Cost of Sales (COGS – Cost of Goods Sold)
Gross Profit
Operating Expenses (Controllable Expenses)
Occupancy Costs (Noncontrollable Expenses)
Operating Income
Interest and Taxes
Net Income

21. Sales/Income Possible categories of Income Food Beverage Catering
Vending
Non-Food

22. Expenses Controllable vs. Noncontrollable
Variable/Fixed/Semi-variable or Mixed
Broken down into 5 main categories (some with several sub-categories)
Food & Beverage Cost (COGS)
Labor Costs (Salaries and wages)
Payroll taxes, insurance, employee benefits
Other Operating Expenses
Occupancy Expenses
Interest & Taxes

23. Other Operating Expenses
Direct Operating Expenses
Advertising / Marketing
Music & Entertainment
Utilities
General and Administrative Expenses
Repairs & Maintenance
Supplies
Corporate Overhead
Fees

24. Occupancy Expenses
Expenses associated with the physical space you occupy
Rent or Lease
Depreciation
Insurance
Taxes

25. What do leasing companies consider?
Good Credit
Liquid Assets
Business Plan
Resume’
Realistic Financial Projections
Good Location
Restaurant Startup & Growth magazine/Restaurant Owner.com

26. Taxes Taxes Payable by the Business
Income Taxes : Federal, State, Local
Property Taxes: State or Local and assessed based on property value
Personal Property Taxes: Equipment, vehicles, construction in process
Taxes Collected by Business for Government
Sales Tax: Collected by business for the State, Local government and submitted by business
Payroll Taxes: Withheld by employer from employee’s paychecks and paid to Federal and State. Can also include unemployment insurance, worker’s compensation and unemployment compensation.

28. Classify as Income or Expense
Utilities
Revenue from T-Shirt Sales
Outside signs
Wine Sales
Wages
Marketing
Food Sales
Repairs

29. Cost Behavior Cost Category Description Classification Is it a % or $
Cost of Goods
Controllable Expenses
Occupation Costs

30. Cost Behavior Cost Category Description Classification Is it a % or $
Cost of Goods
Operating Cost
Controllable Expenses
Occupation Costs
Non-operating Cost

31. Cost Behavior Cost Category Description Classification Is it a % or $
Cost of Goods
Operating Cost & Controllable→
Controllable Expenses
Operating Cost & Controllable →
Occupation Costs
Non-operating Cost
& Non-controllable→

32. Cost Behavior Cost Category Description Classification Is it a % or $
Cost of Goods
Operating Cost & Controllable→
Variable Cost
Controllable Expenses
Operating Cost & Controllable →
Fixed Cost
Occupation Costs
Non-operating Cost
& Non-controllable→

33. Cost Behavior Cost Category Description Classification Is it a % or $
Cost of Goods
Operating Cost & Controllable→
Variable Cost %
Controllable Expenses
Operating Cost & Controllable →
Fixed Cost $
Occupation Costs
Non-operating Cost
& Non-controllable→

34. Cost Behavior when sales change
Cost Category
Classification
Is it % or $
What Happens to $$
What Happens to %
Cost of Goods
Variable %
Controllable Expenses (Controllable)
Fixed $
Occupation Costs (Non-controllable)

35. Cost Behavior when sales change
Cost Category
Classification
Is it % or $
What Happens to $$
What Happens to %
Cost of Goods
Variable %
$$ Change
Controllable Expenses (Controllable)
Fixed $
$$ Same
Occupation Costs (Non-controllable)

36. Cost Behavior when sales change
Cost Category
Classification
Is it % or $
What Happens to $$
What Happens to %
Cost of Goods
Variable %
$$ Change
% to Sales = same
Controllable Expenses (Controllable)
Fixed $
$$ Same
% to Sales ≈ same
Occupation Costs (Non-controllable)
% to Sales = change

37. Cost Behavior for Sales Forecasting
Variable & Mixed (%) Up
Down
Increase
Decrease
Stays the same
Fixed ($)
Same
Decreases
Increases

38. Steps for management control
Set Standards
Measure Performance
Determine Variances
Take Corrective Action
Review Performance & Cycle

39. Another Example
P&L Statement.pdf

40. Review Questions 1. The profit and loss report is also called the
A) balance sheet
B) income statement
C) bottom line statement
D) statement of net worth
2. Which is the correct formula for calculating profit or loss
A) Monthly sales x 12
B) Total costs – Total sales
C) Total sales – Total costs
D) Annual sales – Monthly costs

41. Questions, cont.
3) What is the final step in preparing a profit and loss statement
A) Calculate total sales
B) Calculate total costs
C) Subtract total cost from total sales
D) Determine what time period the report should cover
4) What information is included at the top of a profit and loss statement?
A) Sales
B) Costs
C) Taxes
D) Expenses

42. Questions, cont.
5) An operation’s Budget lists food expenses as $14,000. The P&L report for the period indicates food expenses were $18,000. What has occurred?
A) Tolerance
B) Variance
C) Standard Deviation
D) Corrective Action
6) What technique can be useful to determine the contribution of revenue from different areas?
A) Adding all categories together
B) Separating sales by categories
C) Counting food and beverage sales together
D) Subtracting merchandise sales from food sales

43. Questions, cont. 7) One use of the data found in the P&L report is to
A) complete the operation’s staffing process
B) aid management in developing training programs
C) provide information on the manager’s salary
D) analyze trends and identify areas for improvement
8) What term describes the excess of costs over sales?
A) Profit
B) Break-even
C) Loss
D) Standards

44. Questions, cont.
9) The first step in preparing an income statement is to
A) name the manager preparing the report
B) list the costs to be included it the report
C) identify sales to be included in the report
D) identify the time period covered by the report
10) What is food cost if ending inventory is $4,000, beginning inventory is $2,500 and food purchases were $15,000?
A) $16,500
B) $17,500
C) $13,500
D) $19,000
11) What is prime cost?

45. Questions, cont.
12. An operation’s year-end income statement shows before tax profits of $210,000. Revenues for the year were $1,850,000. What were this operation’s expenses for the year?
a) $1,430,000
b) $1,640,000
c) $2,060,000
d) $2,300,000
13. What is an example of a fixed cost?
a) Utility services
b) Salaries and wages
c) Licenses and permits
d) Repairs and maintenance

46. Assignment Read Chapter 5 in text book
Complete Mikki’s Steak House P & L