HFT 3431 Chapter 3 The Income Statement Income

HFT 3431 Chapter 3 The Income Statement

Income Statement l Statement of Earnings l Profit and Loss Statement l Statement of Operations l Frequency - Daily, Weekly, Monthly, Quarterly, Annually

Income Statement l Reports on a Period of Time l Departmental Income Statements l Uniform System of Accounts

Questions Answered l How Profitable Was Business? l What Were the Total Sales? l How Much Was the Labor Cost? l What Was Food Cost Percent?

Questions Answered l Are Sales In(de)creasing? l Are Expenses In(de)creasing? l What Were Marketing Costs? l What Percent of Sales Is Profit?

Elements of Income Statement l Revenue - Sale of Goods and Services; Investment Income; Rental Income l Expenses - Outflows to Produce Goods; Cost of Goods Sold; Labor; Controllable Expenses; Noncontrollable Expenses

Elements of Income Statement l Other Gains and Losses - From Incidental Transactions; Acts of Nature l Period Income or Loss Add/Deduct To/From Equity

Elements of Income Statement l Internal Users - Management l External Users - Summary Statement

Uniform System of Accounts l Standardized Accounting System l Industry Driven l Basic Formats l Departmental Statement and Schedules

Uniform System of Accounts l Explanations and Discussions l Allows Comparison - Other Operations and Self l Can Be Used by Any Size Operation

Uniform System of Accounts l Property Level Designed Use l Direct Operating Expense Based on Cost of Goods Sold, Direct Labor Expense, Direct Expenses

Contents of the Income Statement l Operated Departments l Net Revenues by Department l Cost of Sales l Payroll and Related See page 95 for sample

Contents of the Income Statement l Other Direct Expenses l Departmental Income – Net Department Revenues Less Departmental Expenses

Contents of the Income Statement l Non Operated Departments l Undistributed Operating Expenses l Payroll and Related and Other Are Shown Separately

Contents of the Income Statement l Administrative and General l Data Processing l Human Resources l Transportation

Contents of the Income Statement l Marketing l Property Operations and Maintenance l Energy Costs l Income After Undistributed Operating Expenses

Contents of the Income Statement l Other Expenses (Board Decisions) l Management Fees l Fixed Charges (Capacity Costs) l Other Gains or Losses l Sale of Property/Equipment

Income Statement Analysis l Comparative Statements l Horizontal Analysis – Calculate Absolute Change (Dollar Difference) – Calculate Relative Change (Percentage Difference) l Investigate Significant Differences l Internal Analysis

Horizontal Analysis Example

Income Statement Analysis l Common Size Statements l Vertical Analysis l Total Revenue Equal 100% l Each Expense Shown As Percentage of Total l Compare to Industry, Like Businesses or Self

Vertical Analysis Example

Data Availability l PKF Consulting - Trends in the Hotel Industry (U. S. and Worldwide) l PKF Consulting - Clubs in Town and Country

Data Availability l Arthur Andersen & Smith Travel Research - The Host Report Hotel Operating Statistics l NRA - Restaurant Industry Operations Report l Local Hotel Organizations

Cost of Goods Sold Calc Beginning Inventory + Purchases = Goods Avail For Sale - Ending Inventory = Cost of Goods Consumed - Transfer Out - Employee meals + Transfer In = Cost of Goods Sold

Adjustments Intraunit transfers l Interunit transfers l Grease sales l Steward sales l Gratis to bars l

Adjustments Promotion expenses l Employee meals l To General Manager l “Comps” l

Cost of Goods Sold Example l Assume: – Beginning Inv $10, 000 – Purchases $50, 000 – Ending Inv $25, 000 – Room Div Emp Meal $15, 000 – Transfer From Bar $1, 000 – Transfer to Banquets $1, 500

Cost of Goods Sold Example $10, 000 Beginning Inv $50, 000 Purchases $60, 000 Goods Avail Sale ($25, 000) Ending Inv $35, 000 Cost of Goods Consumed ($15, 000) Room Div Emp Meal $1, 000 Transfer From Bar ($1, 500) Transfer to Banquets $19, 500 Cost of Goods Sold

Cost of Food or Beverages Sold l Food or beverage cost percent equals cost of goods sold divided by food or beverage sales l What is reported to management?

Gain or Loss Calc Original Cost - Accumulated Depreciation = Book Value Sales Price - Book Value = Gain if positive = Loss if negative

Gain or Loss Example l Assume Purchased Truck for $10, 000 Accumulated Depr is $6, 000 Sold Truck For $5, 000

Gain or Loss Example $10, 000 Purchase Price (6, 000) Accum Depr 4, 000 Book Value $5, 000 Sales Price (4, 000) Book Value 1, 000 Gain (Since positive)

Key Items To Remember Revenues are listed Net of Allowances l Cost of employee meals are part of that dept’s expenses not cost of food sold l Taxes and Benefits considered as part of payroll expense l See page 90 for the 14 Rooms Division Major Other Expenses l

Summary & Departmental Schedules l See pages 130 - 150 regarding – Summary – Rooms – Food & Beverage – Telecommunications – Rentals & Other Income – Administrative & General – Maintenance – Sales & Marketing – Utilities – Other Departmental Statements