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Chapter 4 A Brief Review of Financial Statements

Chapter 4 A Brief Review of Financial Statements. Objectives. Identify purpose and content of balance sheet Identify purpose and content of income statement Identify purpose and content of SCF. Financial Statements. Reflect the score Income statement  net income

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Chapter 4 A Brief Review of Financial Statements

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  1. Chapter 4 A Brief Review of Financial Statements

  2. Objectives • Identify purpose and content of balance sheet • Identify purpose and content of income statement • Identify purpose and content of SCF

  3. Financial Statements • Reflect the score • Income statement  net income • Balance sheet  A = L + E • SCF  Cash flow activities

  4. Financial Statements (cont’d) • Net income is not cash • Sales on account receivables • Sales occur today • Cash comes later • Depreciation • Cash is expended today • Expense is recognized later

  5. Balance Sheet (Overview) • Reflects A = L + E • Current Assets • Investments • Property and Equipment • Current Liabilities • Long-term Debt • Owners’ Equity

  6. Balance Sheet The Sample Hotel December 31, 2011

  7. Liabilities and Owners’ Equity

  8. Liabilities and Owners’ Equity(cont’d)

  9. The Income Statement (Overview) • Revenue • Undistributed operating expenses • Management fees • Fixed charges • Income taxes • Net income

  10. Sources of Revenue • Rooms • Food and beverage • Telecommunications • Rentals and other income

  11. Expenses • Operated department expenses • Payroll and related • Cost of sales • Other direct expenses • Undistributed operating expenses • A&G(General and administrative expense ) • Marketing (including franchise fees) • POM(Property operations & maintenance) • Utility costs

  12. Expenses (cont’d) • Management Fees • Fixed Charges • Rent • Property taxes • Insurance • Depreciation • Interest • Income Taxes

  13. Income Statement The Sample HotelFor the year ended December 31, 2011

  14. Income Statement(cont’d)

  15. Statement of Cash Flows (SCF) • Cash from operating activities • Cash from investing activities • Cash from financing activities

  16. Flows from Income Statement and SCF • Income statement reflects income flows per GAAP • SCF reveals cash flows

  17. Statement of Cash Flow The Sample HotelFor the year ended December 31, 2011

  18. Statement of Cash Flow (cont’d)

  19. Statement of Retained Earnings • Reflects changes in retained earnings account during period • Major items: • Results of operation’s • Dividends declared

  20. State of Retained EarningsThe Model HotelFor the year ended December 31, 2011

  21. Summary • Financial statements are scoreboards • Four major statements • Balance Sheet: A = L + E • Income Statement: R – E = NI • Statement of Cash Flows: Cash in – cash out = Declare in cash • Statement of Retained Earnings: REB + NI – DD = REE

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