1. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Chapter 17 Accounting, Finance, and Cost Control

2. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 After Reading and Studying This Chapter, You Should Be Able to: Describe the systems of accounting typically used by business organizations in the restaurant, lodging and club segments of the hospitality industry Identify various accounting statements and outline the major components of an income statement, balance sheet and statement of cash flows Review the basic role of managerial finance in hospitality operations including ratio analysis, cash management and budgeting

3. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 After Reading and Studying This Chapter, You Should Be Able to: Describe features of systems used to control major direct operating costs including food, beverages, labor and other operating costs Calculate key financial ratios used to analyze the results of operations in hospitality operations

4. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Accounting in the Hospitality Industry Financial recording of revenues and expenditures to maximize profit margin Accounting department responsible for: Tracking Reporting Communicating Size of department depends on the size of the operation

5. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Uniform System of Accounting and Regulatory Agencies Standardized accounting system for all industries Lodging Restaurants Clubs Guidelines for better decision-making Industry-wide consistency

6. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Principles Established by Profession GAAP FASB SEC

7. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Types of Accounting Auditing Financial Managerial Cost Tax

8. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Types of Business Organizations Proprietorship Partnership Corporation

9. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Finance in the Hospitality Industry Cash inflows/outflows Find money to run a business Find money to grow a business Make investments in real assets Plan for companies’ financial future Manage cash on hand

10. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Financial Statements Income statement Balance sheet Assets Liabilities Owner’s equity Equity Liquidity Statement of cash flow

11. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Figure 17-1 Income Statement

12. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Food and Beverage Cost Control Greatest percentage of operating cost Average food cost percentage – 25 to 35 percentage of food sales Average beverage cost percentage – 16 to 26 percentage of beverage sales Reporting and tracking is critical

13. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Cost Lowering Methods Specification sheets for inventory purchases Standardized recipes Detailed menu costing Tracking Security Regulating inventory Highlighting seasonal items Educating employees Include condiments, oils, dressings, etc. in plate cost Perform regular yield tests Consider employee meal cost Monitor overtime Training

14. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Food Cost Percentage Cost of Foods Sold Total Food Sales x 100

15. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Beverage Cost Percentage Cost of Beverage Sold Total Beverage Sales x 100

16. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Labor Costs Control One of the largest operating costs Adequate training is essential Lower turnover helps maintain reasonable costs Job descriptions facilitate better hiring practices which control costs

17. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Labor Cost Percentage Total Labor Cost Total Sales Revenue

18. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Other Operating Costs Property taxes Maintenance Music and entertainment Business fees and licenses Insurance Management fees Rent Utilities Uniforms

19. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Other operating Cost Percentage Total Other Operating Costs Total Sales Revenue

20. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Trends Increased use of technology Sarbanes-Oxley Act of 2002 Focus on increasing cost of business risk

21. Introduction to Hospitality, Fourth Edition John Walker ©2006 Pearson Education, Inc. Pearson Prentice Hall Upper Saddle River, NJ 07458 Figure 17-2 Balance Sheet