1. HFT 3431 Chapter 1 Introduction to Managerial Accounting

2. The Accounting Profession Financial Financial Cost Cost Managerial Managerial Tax Tax Auditing Auditing Governmental Governmental

3. Users of Financial Information Owners Owners Creditors Creditors Managers Managers Governments Governments Investors Investors

4. Financial vs. Managerial Accounting Financial accounting is historical Financial accounting is historical Managerial accounting focuses on analysis, information, enhanced controls and planning Managerial accounting focuses on analysis, information, enhanced controls and planning

5. Managerial Accounting Management is choosing from alternative courses of action Management is choosing from alternative courses of action Managerial accounting is concerned with serving internal decision makers Managerial accounting is concerned with serving internal decision makers Managerial accounting links with cost accounting Managerial accounting links with cost accounting Provides financial statement analysis and interpretation Provides financial statement analysis and interpretation Financial accounting is concerned with serving external decision makers Financial accounting is concerned with serving external decision makers

6. End Products Used from Financial Accounting Balance Sheet (Ch 2) Balance Sheet (Ch 2) Income Statement (Ch 3) Income Statement (Ch 3) Statement of Cash Flows (Ch 4) Statement of Cash Flows (Ch 4)

7. The Hospitality Business Hotels, motels, motor inns Hotels, motels, motor inns All types of food service All types of food service Theme parks Theme parks Transportation services Transportation services Entertainment Entertainment Recreational facilities Recreational facilities Convention services Convention services

8. H o s p i t a l i t y I n d u s t r y R e s t a u r a n t s & F o o d S e r v i c e L o d g i n g T r a v e l & T o u r i s m C o n v e n t i o n s A t t r a c t i o n s S e r v i c e

9. The Hospitality Business Seasonal business Seasonal business Fluctuating demand Fluctuating demand Short conversion time – food & beverage Short conversion time – food & beverage Selling space Selling space –Perishable product –It’s now or never Labor intensive Labor intensive Intensive fixed asset requirement Intensive fixed asset requirement

10. Accounting Review Uniform System of Accounts Uniform System of Accounts Generally Accepted Accounting Principles (GAAP) Generally Accepted Accounting Principles (GAAP) International Financial Reporting System (Near future) International Financial Reporting System (Near future)

11. Principles of Accounting Cost Cost Business Entity Business Entity Continuity of the Business Unit Continuity of the Business Unit Unit of Measurement Unit of Measurement Objective Evidence Objective Evidence Full Disclosure Full Disclosure Consistency Consistency Matching Matching Conservatism Conservatism Materiality Materiality

12. Cost Principle States that when a transaction is recorded, the transaction price (cost) establishes the accounting value

13. Business Entity Statements are based on the concept that each business maintains its own accounts, & that these accounts are separate from other interests of the owners

14. Continuity of the Business Unit The assumption that the business will continue indefinitely

15. Unit of Measurement All transactions are expressed in monetary terms All transactions are expressed in monetary terms

16. Objective Evidence Accounting records are based on objective evidence ( invoices, checks, cash register receipts)

17. Full Disclosure Financial statements must provide all information pertinent to interpretation of the financial statements

18. Consistency The same accounting method from time period to time period

19. Matching Match revenues with expenses Cash versus accrual

20. Conservatism Recognize expenses as soon as possible, but delay recognition of revenues until they are sure

21. Materiality Events or information must be accounted for if they make a difference to the financial statements

22. Cash vs. Accrual Accounting Cash basis accounting Cash basis accounting –Recognize revenue when cash received, expense when cash disbursed Accrual basis accounting Accrual basis accounting –Recognize revenue when earned –Recognize expense when incurred

23. Fundamentals of Accounting Balance Sheet Balance Sheet Assets (Things Owned) = Liabilities ( Obligations ) + Equity ( Residual Claims on Assets )

24. Fundamentals of Accounting Income Statement Income StatementRevenues - Expenses = Net Income (Loss) Temporary Accounts are Netted and Closed to Equity (retained earnings)

25. Fundamental Equation Assets = Liabilities + Owners Equity Assets = Liabilities + Owners Equity Assets = Liabilities Assets = Liabilities + Permanent OE + Permanent OE + Temporary OE + Temporary OE Assets = Liabilities Assets = Liabilities + Permanent OE + Permanent OE + Revenue + Revenue - Expenses - Expenses

26. Assets Resources owned by a business Resources owned by a business –Common characteristic – the capacity to provide future benefit or service –Use for the purpose production, consumption and exchange of goods or services –Future economic benefits results in cash inflows

27. Liabilities Claims against assets Claims against assets Creditors Creditors Existing debts and obligations Existing debts and obligations –Accounts payable –Notes payable –Wages payable –Sales, Real Estate and Income Taxes payable

28. Equity Claims of the owners on the assets Claims of the owners on the assets Corporations Corporations –Paid in capital –Retained earnings –Revenues –Expenses –Dividends Revenues > Expenses = Net Income Revenues > Expenses = Net Income Revenues < Expenses = (Net Loss) Revenues < Expenses = (Net Loss)

29. Transactions Transactions defined: economic events of the enterprise recorded Transactions defined: economic events of the enterprise recorded Each transaction may be internal or external Each transaction may be internal or external Each transaction must identify the specific items affected and the net change on each item Each transaction must identify the specific items affected and the net change on each item Each transaction has a dual effect on the accounting equation Each transaction has a dual effect on the accounting equation The two sides of the accounting equation must always equal The two sides of the accounting equation must always equal

30. Effects of Transactions on the Accounting Equation Increase in an asset Increase in an asset –Decrease in another asset –Increase in a liability –Increase in owners equity Increase in a liability Increase in a liability –Increase in an asset –Decrease in another liability –Decrease in owners equity Increase in owners equity Increase in owners equity –Increase in an asset –Decrease in liability

31. Types of Accounts Asset Accounts – Normal Balance = Debit Asset Accounts – Normal Balance = Debit Liability Accounts – Normal Balance = Credit Liability Accounts – Normal Balance = Credit Equity Accounts Equity Accounts –Permanent Equity – Normal Balance – Credit –Temporary Owners Equity Revenue – Normal Balance = Credit Revenue – Normal Balance = Credit Expense – Normal Balance = Debit Expense – Normal Balance = Debit

32. Debit vs Credit Assets and Expenses have a normal balance of a Debit Assets and Expenses have a normal balance of a Debit –To increase the balance Debit –To decrease the balance Credit Liabilities, Permanent OE and Revenues have a normal balance of a Credit Liabilities, Permanent OE and Revenues have a normal balance of a Credit –To increase the balance Credit –To decrease the balance Debit

33. Forms of Business Organizations Sole Proprietorship Sole Proprietorship Partnerships Partnerships Limited Partnerships Limited Partnerships Limited Liability Companies (LLC) Limited Liability Companies (LLC) Corporations Corporations

34. Sole Proprietorship Easiest to organize / dissolve Easiest to organize / dissolve Legally not a separate business – liability issues Legally not a separate business – liability issues It is separate for accounting purposes, however It is separate for accounting purposes, however Owner not paid a salary or wage - withdrawals Owner not paid a salary or wage - withdrawals

35. Partnerships Two or more people joined together in a non- corporate manner for conducting business. Can use a written or oral agreement Two or more people joined together in a non- corporate manner for conducting business. Can use a written or oral agreement

36. Partnerships Advantages Advantages –Greater financial strength –Does not pay taxes –Shares liability –Greater management strength Disadvantages Disadvantages –Partners are taxed on profits regardless of cash distribution –Limits decision making process –Unlimited legal liability

37. Limited Partnerships Offers liability protection to limited partners Offers liability protection to limited partners –General Partner(s) – responsible for debts of the partnership –Limited Partner(s) – may not actively participate in the day to day operations of the business –Agreement must be written –Limited partners liability is limited to the amount of their investment

38. Corporations A legal entity created by a state or other political authority A legal entity created by a state or other political authority Characteristics Characteristics –An exclusive name –Continued existence independent of stockholders –Paid in capital represented by shares of stock –Overall control vested in its directors

39. Corporations Advantages Advantages –Shareholders liability limited to amount of investment –Owners are taxed on distributed profits (dividends) –Employee equity participation (ESOP) –Lower tax rates –Corporation continues on in perpetuity Disadvantages Disadvantages –Double taxation –Ownership control

40. Other Forms Of Business Organization S-Corp S-Corp –Eliminates double taxation –Limited to 75 shareholders –Only one class of stock –Shareholders pay taxes Limited Liability Company (LLC) Limited Liability Company (LLC) –May have unlimited number of owners –May have a single owner –Not restricted to one class of stock

41. Elements of Ethics Use of Company Assets Use of Company Assets Anti-Trust Laws Anti-Trust Laws Relations With Competitors Relations With Competitors Relations With Suppliers Relations With Suppliers Relations With Customers Relations With Customers

42. Ethics and Hospitality Accounting Is the Decision Legal? Is the Decision Legal? Is the Decision Fair? Is the Decision Fair? Does the Decision Hurt Anyone? Does the Decision Hurt Anyone? Have I Been Honest With Those Affected? Have I Been Honest With Those Affected?

43. Ethics and Hospitality Accounting Can I Live With My Decision? Can I Live With My Decision? Am I Willing to Publicize My Decision? Am I Willing to Publicize My Decision? What If Everyone Did What I Did? What If Everyone Did What I Did?

44. Homework Problems 1,2,3,5 Problems 1,2,3,5