1. Hotel Financial Statements

2. Uniform System of Accounts • 1925 by Hotel Association of New York city • 10th version revised in 2006. • Special format for income statement and balance sheet for hospitality businesses • Nature of the operations and organization of the hotels influences this format • Revenue centers vs. support centers • Direct expenses vs. indirect expenses • Departmental income statements • Responsibility accounting

3. Nature of Operations Hotel Revenue Centers Support Centers Rooms Food and Beverage Telephone Gift Shop Rentals and Other Administrative and General Data Processing Human Resources Maintenance Marketind and Sales Departmental Income Statements Expense Schedules

4. Departmental Income Statements • Three major operating areas: • Rooms • Food • Beverage • Other significant revenue producing departments: Minor revenue centers • Food and beverage usually reported together

5. Departmental Income Statements • Includes revenues and expenses of that department only (direct expenses) Revenues -Allowances =Net Revenue -Cost of Sales =Gross Profit -Payroll and Related Expenses -Other Direct Expense =Departmental Income (Contributory Income) General Format

6. F&B Income Statements • Special feature of F&B Departmental Income Statements • Calculation of cost of food and beverage sold • Cost of food used • Transfers from/to beverage department • Cost of food sold • Employee meals and cost of promotion meals • Sale of scrap = reduction from cost of sales

7. Cost of Food Sold – Pr. 2.2

8. Beginning Inventory 14.753 + Purchases 48.798 + Transfers from bar 48 - Transfers from kitchen 107 Total Available 63.492 - Ending Inventory 12.811 Cost of Food Used 50.681 - Cost of Employee Meals 1.208 - Cost of Promotion Meals 410 Cost of Food Sold 49.063 Cost of Food Sold – Pr. 2.3

9. Food Department Income Statement Pr. 2.1

10. Use of Income Statement • Reveals important information • Sales volumes • Sales level and cost relations • Sales by departments • Operational effectiveness • Contributory income percentages • Budgets and comparisons of actual and budgets

11. Hotel Income Statement Rooms Dept. I+S Food Dept. I+S Beverage Dept. I+S Total Departmental Income Support Centers - Undistributed Operating Expenses = Income before Fixed Charges Ownership Expenses - Fixed Charges = Income before Taxes –Taxes = Net Income

12. Major Categories of Hotel I+S Revenue Centers • Operated Departments • Rooms • Food and Beverage • Minor Operated Departments • Undistributed Operating Expense • Administrative and General • Data Processing • Human Resources • Marketing • Property Operation and Maintenance • Energy Costs • Fixed Charges • Rent, Property Taxes, Property Insurance • Interest Expense • Depreciaiton and Amortization Support Centers Ownership Related Expenses

13. Hotel Income Statement – Summary Form

14. Inventory Valuation – Cost of Sales • Different inventory valuation methods • Specific item cost • First-in-first-out • Last-in-first-out • Weighted average cost

15. Specific Item Cost

16. First-in First-Out

17. Last-in First-Out

18. Weighed Average Cost Do Problem 2.4

19. Restaurant Departmental Contributory Income Statement- Without allocation of Indirect Expenses

20. Allocation of Indirect Expenses • Based on an allocation key • Artificial • In this example: assume • Administrative & General and Marketing expenses to be allocated on the basis of sales volume • Dining: 202,000/400,000 = 50.5% • Banquet: 108,000/400,00 =27.0% • Beverage: 90,000/400,000 = 22.5% • All others to be allocated on square foot basis • Dining room – 2400 sq.ft. • Banquet – 3000 sq.ft. • Service bar – 600 sq.ft.

21. Restaurant Income Statement-Allocation of Indirect Expenses

22. Revenue Mix Effect–Shift of $16,000 revenue from banquet to dining room.

23. Balance Sheet - Assets • Current Assets • Cash on Hand • Cash in Bank • Marketable Securities • Credit Card Receivables • Accounts Receivable • Inventories • Food and beverages, supplies • Prepaid Expenses

24. Balance Sheet - Assets • Fixed Assets • Land, Building, Furniture and Equipment -Accumulated Depreciation • China, Glass, Silver, Linen and Uniforms • Other Assets • Deposits • Investments • Leasehold costs and leasehold improvements • Deferred Expenses

25. Balance Sheet - Liabilities • Current Liabilities • Accounts payable • Accrued Expenses • Income Tax Payable • Unearned Income – Deposits and credit balances • Current Postion of Long Term Mortgage • Dividends Payable • Long Term Liabilities

26. Balance Sheet - Equity • Capital Stock • Capital Surplus – Paid-in-Capital in Excess of Par Value • Retained Earnings Review Exhibit 2.8 and 2.9 Do Problem 2.7

27. Balance Sheet Limitations • Historical cost: does not show market value • Some qualitative aspects totally ignored- such as goodwill • Human resources not treated as assets • Subjective matters such as depreciation • Shows result only for a moment – window dressing