1. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter 2 Financial Reporting

2. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter Overview Accounting as the language of businessAccounting as the language of business –Accounting standards and principles –Uniform systems of accounts Financial statementsFinancial statements –Income statement –Balance sheet –Statement of cash flow

3. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Chapter Overview cont. Management reportsManagement reports –Daily revenue report –Daily payroll cost report –Rooms revenue forecast –Food and beverage menu abstract –Accounts receivable aging schedule Accounting system - CP3 systemAccounting system - CP3 system

4. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Types of Accounting Financial Accounting Focuses on financial statementsFocuses on financial statements Must present:Must present: –financial condition of the company –operating results Managerial Accounting Provide timely operating results Focuses on: –Revenues and expenses –Maximizing operating performance

5. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Accounting Standards Develop StandardsDevelop Standards –Financial Accounting Standards Board (FASB) –Securities and Exchange Commission (SEC) Generally Accepted Accounting Principles (GAAP)Generally Accepted Accounting Principles (GAAP) –Govern all accounting and financial reporting

6. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Accounting Principles Cost PrincipleCost Principle –All transactions must be recorded at cost Full Disclosure PrincipleFull Disclosure Principle –Events that could impact a company’s financial position should be reflected on financial statements or footnotes Revenue Recognition PrincipleRevenue Recognition Principle –Revenues should be recorded in the month they are earned

7. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Accounting Principles cont. Matching PrincipleMatching Principle –All expenses incurred in generating a revenue should be recorded in the period the revenue is earned Monetary Unit PrincipleMonetary Unit Principle –Only transactions that can be expressed in terms of money can be shown on a company’s financial statements Economic Entity PrincipleEconomic Entity Principle –Separates the dealings of a business from the private dealings of its owners

8. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Accounting Principles cont. Going Concern PrincipleGoing Concern Principle –Requires businesses to assume they will continue to operate long into the foreseeable future Time Period PrincipleTime Period Principle –The company must set specific time periods for measuring its financial results Materiality PrincipleMateriality Principle –Significant revenues or expenses should have thier own account on the income statement

9. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Uniform Systems of Accounts Uniform System of Accounts for the Lodging IndustryUniform System of Accounts for the Lodging Industry Uniform System of Accounts for RestaurantsUniform System of Accounts for Restaurants Uniform System of Financial Reporting for ClubsUniform System of Financial Reporting for Clubs Other systems:Other systems: –Timeshare –Condominium –Health, racquet, and sports clubs –Spas

10. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Income Statement Presents operating results over a specific period of timePresents operating results over a specific period of time Sections of the income statement:Sections of the income statement: –Revenues or Sales –Operating Expenses For hotel properties: –Departmental expenses –Unallocated expenses –Capital Expenses or Fixed Costs –Net Income or Profit and Loss

11. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Sample Income Statement Sample Restaurant Income Statement For the month ended June 30, 2008 Revenues: Food $ 890,000 Beverage 220,000 Others 28,100 Total Revenues $ 1,138,100 Cost of Sales: Food $ 320,400 Beverage 48,400 Others 15,455 Total Cost of Sales $ 384,255 Gross Profit: Food $ 569,600 Beverage 171,600 Others 12,645 Total Gross Profit $ 753,845 Operating (Controllable) Expenses: Salaries and Wages $ 352,811 Employee Benefits 105,843 Direct Operating Expenses 68,286 Marketing 39,834 Utilities 44,386 Administration & General 28,453 Repairs and Maintenance 25,038 Music and Entertainment 31,867 Total Operating Expenses $ 696,517 Operating Income $ 57,328 Other (Non-controllable) Expenses: Rent $ 8,000 Depreciation 20,470 Interest 4,500 Total Non-controllable Expenses $ 32,970 Income Before Income Taxes $ 24,358

12. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Balance Sheet Provides a snapshot of a company’s financial positionProvides a snapshot of a company’s financial position Categories of accounts:Categories of accounts: –Assets Current Assets Fixed Assets –Liabilities Current Liabilities Long Term Liabilities –Equity Assets = Liabilities + Equity

13. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Sample Balance Sheet Danforth's Hotel Balance Sheets As of December 31 20072008 Cash $ 8,000 $ 12,560 Accounts Receivable $ 2,000 $ 4,000 Marketable Securities $ 6,000 Inventory $ 13,150 $ 15,000 Prepaid Rent $ 10,000 $ 13,500 Total Current Asset $ 39,150 $ 51,060 Furniture, Fixture & Equipment (FF&E) $ 8,560 $ 17,500 Accumulated Depreciation (FF&E) $ (3,030) $ (4,000) Building $ 20,000 Long term Investments $ 30,000 $ 15,000 Long Term Assets $ 55,530 $ 48,500 Total Assets $ 94,680 $ 99,560 20072008 Accounts Payable $ 15,000 $ 12,460 Accrued Payroll $ 7,500 $ 8,000 Accrued Taxes $ 8,560 $ 5,500 Total Current Liabilities $ 31,060 $ 25,960 Long Term Debt $ 22,500 $ 15,000 Owner's Equity $ 31,120 $ 40,620 Retained Earnings $ 10,000 $ 17,980 Total Owner's Equity $ 41,120 $ 58,600 Total Liabilities and Owner's Equity $ 94,680 $ 99,560

14. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Statement of Cash Flow Three sections:Three sections: –Cash Flow from Operations –Cash Flow from Investing Activities –Cash Flow from Financing Activities

15. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Sample Statement of Cash Flow Danforth's Hotel Statement of Cash Flow For the Year Ended December 31, 2008 Cash flows from operations: Net Income $ 7,980.00 Increase in depreciation $ 970.00 Increase in accounts receivables $ (2,000.00) Increase in inventory $ (1,850.00) Increase in prepaid rent $ (3,500.00) Decrease in account payable $ (2,540.00) Increase in accrued payroll $ 500.00 Decrease in accrued taxes $ (3,060.00) $ (3,500.00) Cash flows from investing activities: Purchase of FF&E $ (8,940.00) Sale of long term investments $15,000.00 $ 6,060.00 Cash flow from financing activities: Payment of long term debt $ (7,500.00) Increase in Owners' equity $ 9,500.00 $ 2,000.00 Total cash flows $ 4,560.00 Beginning cash balance $ 8,000.00 Add changes in cash $ 4,560.00 = Ending cash balance $12,560.00

16. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Management Reports Daily Revenue ReportDaily Revenue Report Daily Payroll Cost ReportDaily Payroll Cost Report Rooms Revenue ForecastRooms Revenue Forecast Food and Beverage Menu AbstractFood and Beverage Menu Abstract Accounts Receivable Aging ScheduleAccounts Receivable Aging Schedule

17. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Daily Revenue Report ALL SPORTS RESORT As of Friday, 11/10/2008 Today KEY METRICS Period-to-Date ActualBudgetLast Year ActualBudgetLast Year 70.3%90.4%91.8%TOTAL OCCUPANCY %70.4%80.0%72.2% 76.8%91.2%92.5%AVAILABLE OCCUPANCY %76.7%80.6%73.4% 391 TOTAL ROOMS10,948 275353359ROOMS SOLD7,7068,7537,900 279357362OCCUPIED ROOMS7,8188,8357,971 434COMPLIMENTARY ROOMS1128274 1123428VACANT ROOMS3,1302,1132,974 358388 AVAILABLE ROOMS10,05210,86610,758 46.4077.8365.42REVPAR65.9773.2967.78 248N/A267ARRIVALS4,382N/A4,382 122N/A218DEPARTURES4,149N/A4,087 522N/A636GUESTS9,482N/A9,734 4678136ROOMS SOLD-Transient3,2434,2974,212 172220183ROOMS SOLD-Group3,1312,8702,365 575939ROOMS SOLD-Contract1,3321,5861,335 85.61111.0681.29AVERAGE RATE- Transient117.97111.06113.44 66.1485.4172.09AVERAGE RATE- Group87.0485.4089.72 49.2349.3447.18AVERAGE RATE- Contract48.5749.3449.00

18. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Daily Payroll Cost Report Daily Payroll Report Florencia Hotel and Conference Center Date:6/5/2008 DailyMonth-to-Date RoomsRegularOvertimeTotalPayroll $%RegularOvertimeHoursPayroll $Payroll %Budgeted % Front Desk38.100.0038.10$565.792.10%671.981.67673.65$9,930.643.99%3.49% Reservations13.030.0013.03$206.700.77%269.2714.66283.93$4,131.341.66%1.74% Guest Services22.030.0022.03$252.390.94%338.0915.84353.93$4,412.271.77%1.98% Housekeeping85.700.0085.70$905.153.35%1,685.39125.351,810.74$19,480.017.82%9.50% Management0.00 $0.000.00%0.00 $0.000.00%0.30% Total Rooms158.860.00158.86$1,930.037.15%2,964.73157.523,122.25$37,954.2615.24%16.70% DailyMonth-to-DateBudget RoomsRegularOvertimeTotalPayroll $Cost/RoomRegularOvertimeHoursPayroll $Cost/Room Front Desk38.100.0038.10$565.79$3.93671.981.67673.65$9,930.64$6.23$5.29 Reservations13.030.0013.03$206.70$1.44269.2714.66283.93$4,131.34$2.59$2.64 Guest Services22.030.0022.03$252.39$1.75338.0915.84353.93$4,412.27$2.77$3.00 Housekeeping85.700.0085.70$905.15$6.291,685.39125.351,810.74$19,480.01$12.23$14.43 Management0.00 $0.00 0.00 $0.00 $0.45 Total Rooms158.860.00158.86$1,930.03$13.402,964.73157.523,122.25$37,954.26$23.83$25.36

19. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Rooms Revenue Forecast FORECAST: as of 11/30/08 City:Los Angeles Property:Huntington - Airport # Rooms:86 Division:RoomsHuntington Los Angeles Airport 12-Day Forecast Report12/1/0812/2/0812/3/0812/4/0812/5/0812/6/0812/7/0812/8/0812/9/08 12/10/00 812/11/0812/12/08 Avail Rooms86 Forecast #5553262536484653 6523 Forecast Occupancy %63.95%61.63%30.23%29.07%41.86%55.81%53.49%61.63% 75.58%26.74% Net Rooms Revenues621553132653272440505272474153135157615323002473 Average Rate $113.00 $ 100.25 $ 102.04 $ 108.96 $ 112.50 $ 109.83 $ 103.07 $ 100.25 $ 97.30 $ 94.66 $ 100.00 $ 107.52

20. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Food and Beverage Menu Abstract Food Menu Abstract Date:January-March, 2008 Restaurant:Mexicana Cantina MealPeriod:Lunch Menu Item NameNumberMenuItem Menu SoldMixFoodSellingCMCostsRevenuesCM (MM)%CostPrice(E - D)(D * B)(E * B)(F * B) Bean, Cheese and Jalapeno Nachos1701.21%$2.44$7.25$4.81$414.80$1,232.50$817.70 Beef, Bean, Cheese and Jalapeno Nachos1801.29%$2.78$8.50$5.72$500.40$1,530.00$1,029.60 Chicken Fajita, Bean, Cheese and Jalapeno Nachos2221.59%$2.83$9.95$7.12$628.26$2,208.90$1,580.64 Beef Fajita, Bean, Cheese and Jalapeno Nachos2531.81%$3.28$9.95$6.67$829.84$2,517.35$1,687.51 Cheese Quesadillas1951.39%$1.64$7.75$6.11$319.80$1,511.25$1,191.45 Chicken Fajita Quesadillas2862.04%$2.02$8.95$6.93$577.72$2,559.70$1,981.98 Beef Fajita Quesadillas2591.85%$2.48$8.95$6.47$642.32$2,318.05$1,675.73 Shrimp and Scallop Quesadillas1581.13%$3.82$11.50$7.68$603.56$1,817.00$1,213.44 Shrimp Quesadillas1761.26%$3.44$11.50$8.06$605.44$2,024.00$1,418.56 Spinach Quesadillas1250.89%$1.83$8.50$6.67$228.75$1,062.50$833.75 Mixed Vegetable Quesadillas910.65%$1.75$8.50$6.75$159.25$773.50$614.25 Mixed Vegetable Queso Flameado370.26%$1.24$7.50$6.26$45.88$277.50$231.62

21. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved Accounts Receivable Aging Schedule Aging Schedule for Hanover Country Club MembersTotalNumber of Days Past Due 1-3031-6061-90Over 90 C. DeCarlo$200 T. Vangard$450 J. Samuel$100 F. Engel$320 M. Pratel$335 M. Morgan$600 Others$26,875$14,000$10,000$1,000$2001,675 Total$28,880$14,200$10,450$1,600$535$2,095 Estimated uncollectible1.5%2.0%10%20%40% Total Bad Debts$1,527$213$209$160$107$838

22. Copyright © 2007 by John Wiley & Sons, Inc. All rights reserved CP 3 System Tool that can help budget cash properlyTool that can help budget cash properly Four components:Four components: –Monthly Commitment Budget –Purchase Order System –Daily Payroll System Report –Daily Profit and Loss Statement