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Financial Accounting

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deals with past events

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Cost Accounting

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current and prospective costs

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Managerial Accounting

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future events

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Tax Accounting

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relating to tax prep

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Auditing

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reviewing

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Accounting Systems

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"I.t"

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IRS-internal revenue service

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enforces federal tax laws indirectly influences smaller companies accounting practice

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limited partnerships

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1 partner responsible for debt- has unlimited liability

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cost principle

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record at price

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business entity

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business and personal accounts are separate

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matching

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match revenues to expenses. must be recorded when received (not for cash basis/ is for accrual basis)

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conservatism

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recognize expenses as soon as possible but revenues till given. dont under or over estimate

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full discloser

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footnotes

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consistency

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using same accounting method

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materiality

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accounted for if they make a difference

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operating equipment

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land, buildings, furniture, carpet

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liability accounts

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payable taxes from guests accrued expenses advanced deposits

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normal balances- ALORE

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A L O R E + d c c c d -c d d d c

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General Ledger- Balance sheet

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permanent (asset, liability, owners equity)

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General Ledger- Income statements

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"nominal" temporary (revenues and expenses) closed at the end of the year

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Journalizing

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recording in journal

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Cash Vs Accrual Accounting

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cash inflow or outflow accrual- recognizes expenses when incurred and revenue when it is earned

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accruals

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adjustments which no data has been previously recorded

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Steps in the accounting cycle

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1.ANALYZING TRANSACTIONS examining source docs such as sales 2. JOURNALIZING TRANSACTIONS- recording transactions 3. POSTING- transfers journal to ledger 4. PREPARE TRIAL BALANCE- summarize ledger 5.PREPARE ADJUSTING ENTRIES- transfer adjustments and put in general ledger 6. POSTING ADJUSTING ENTRIES- " " 7. PREPARE ADJUSTED TRIAL BALANCE- summarize ledger 8. PREPARE FINANCIAL STATEMENTS- rearrange adjusted 9. RECORD CLOSING ENTRIES- 10. PREPARING A POST-CLOSING TRIAL BALANCE

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statement of owners equity

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link between income statement and balance sheet

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clearing accounts

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the revenue and expense accounts are often closed to the capital account through the income summary

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reversing entries- compound entry

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when you reverse entry and put the new one in at the same time

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income statement

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reflects time period between two balance sheet dates Net income + O.E Net loss occurs when expenses > revenue Net loss - O.E

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sales

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the sales of goods and services occurs between the seller and the buyer

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gains & losses

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gains-increase in assets decrease liability losses-decrease in assets increase in liability

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earnings per share

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EPS= net income/ commons shares outstanding

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Summary operating statement per USALI

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EBITDA- less interest, depreciation, and amortization = income before income taxes

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purpose of a balance sheet

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reflects financial position of the financial operation at a given date conveys useful information

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limitations of balance sheet

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based on cost principle-does not reflect current value fails to reflect items of value to the hospitality industry specific point in time- becomes outdated based on judgement and estimates

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current assets

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used within one year

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other assets- goodwill

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represents the excess of the purchase price over the fair value of net assets (pay more for something because it's more than just physical things)

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Net working capital

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current assets-current liabilities

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footnotes

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provide additional information not presented

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control accounts and subsidiary accounts

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control- all transactions affecting guest accounts subsidiary- detail of all individual

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specialized journal

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use different account for each different transaction ex sales journal. cash journal,

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cash receipts journal

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to record all cash inflows

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transfer journal

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records the transfer of one persons account to another, in the same ledger, or to another ledger

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computerized systems

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hardware- display screen, keyboard, disk drive software- tell the program what when how to do it

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definition of cash equlivents

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include short term and liquid investments held by the firm ex. commercial paper, treasury bills, certificates of deposit

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internal control of cash

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1. cash handling duties segregated 2. bookkeeping and cash handling separate 3.all expenditures paying check 4. mechanical devices used to safe guard cash 5. servers and cashiers use numbered sales tickets 6. cash deposited daily 7. employees should be bonded by insurance 8. internal and external audit performed periodically 9. voucher system shall be implemented

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three-step procedure to reimburse pett(cod)y cash

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1. debit expense accounts relating to receipts in the fund 2. subtract the amount of remaining cash from the amount of the fund and credit cash for that amount 3. if the credit does not = the debit entry, use the cash short and over account to balance the entry

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five reasons for bank reconciliation differences

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1. deposit in transit 2.outstanding checks 3. NSF checks 4. Bank Service charges 5. credits for interests earned or receivables collected

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steps to prepare a bank reconciliation

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Bank Balance - outstanding checks + cash receipts Book Balance - NSF checks + interest - bank service charge

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invoice terms

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2/10 net/30 first number= percent 2nd number=days

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credit card sales-bank card drafts

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bank card drafts are reciepts

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direct write off method

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an AR is written off at the time that it is determined to be uncollectable

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allowance method

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estimate bad debt expense at the end of each accounting period. "accounts for undoubtful accounts"

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aging of accounts receivable method

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percentages are applied to total AR by age "allowance for doubtful accounts" subtract what balance should be from actual balance

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interest bearing notes

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note on which interest accrues over the life of the note

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non-interest bearing notes

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includes interest in the face value of the note

question

periodic vs perpetual inventory

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periodic- no continuous inventory accounts are kept exact inventory is not known until a physical count is done perpetual - continuous update to inventory as purchases are made most use periodic but with technology rising it is now perpetual

question

taking a physical inventory

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actual counting of the inventory items footing of the inventory should be taken on the first month if not electronically

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FOB Destination/shipping point definition

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detination - seller pays for the transportation shipping point- buyer pays for transportation

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weighted average method

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cost of units available for sale/ units available

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Gross profit method

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percent for the firm is constant from period to period

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Lower of cost or market (LCM)

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states that inventory shall be carried after the lower of cost or the market value of the inventory as of the balance sheet date either item by item or by comparing total cost with market value

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revenue vs capital expendentures

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revenue-benefits within one year capital- benefits over one year

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Lump Sum purchases

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the purchase of 1 or 2 assets is made for one price both shall be appraised at their current market value of the assets are added up and expressed as percentages

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Depreciation of property and equipment

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process by which property and equipment is expensed over it's life cost-salvage value/useful usage =depreciation

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disposal of property and equipment assets

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take a property and equipment asset off the books because the asset is being scrapped, sold, or traded in sometimes disposed up through the sale that results in a gain or loss

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exhange of propert equipment and assets

answer

property equipment assets like a truck are commonly traded or exchanged for a similar asset

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notes payable interest calculation

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interest=principle x rate x time

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accounting for payroll related liabilities

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1.payroll sections should be segregated 2. the HR department should be the only one to add or delete individuals 3. properly record time worked 4. employees paid by check 5. payroll sheets/ paychecks independently checked 6. any unclaimed checks should be returned

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imprest payroll account

answer

employees should be paid by check not cash only the exact amount of a given payroll is deposited

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reporting tips

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should be at least 8% of the qualified gross receipts of the business

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calculating property taxes

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(value/ 1,000) x mills

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General vs limited partnerships

answer

general- all partners have unlimited liability limited- one partner with unlimited limited liability is = to their investment in the company

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division of income

answer

-Fixed ratio Agreed upon by all partners -Salary, plus a fixed ratio Salaries are paid first Remaining profits are split according to agreed upon ratio -Salary, interest, plus a fixed ratio Salaries are paid first Interest on Capital Balances paid next Remaining profits are split according to agreed upon ratio

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admission of a new partner

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2 ways 1. buy an existing partners entire interest 2. invest cash or other assets for an equity interest

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liquidation of a partner

answer

assets converted into cash debts are paid in full balance is distributed to the partners based on T.B

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paid in capital vs earned capital

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-Paid in Capital Common Stock, Preferred Stock, Additional Paid-In Capital, Common Stock Subscribed -Earned Capital Retained Earnings - Profits that a company has earned over its life less any dividends paid out

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disadvantages of corporations

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double taxation highly regulated

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retained earnings

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Profits that a company has earned over its life less any dividends paid out

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Book value per share of common stock

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Net Assets (Total O.E.) = Assets - Liabilities Book Value for All Shares = Net Assets Total Stockholders' Equity / Number of Common Shares Outstanding ***par value(book value) has nothing to do with market value****

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classifying bonds

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term bond- all paid off at once serial bond- paid off in equal installments mortgage bonds- based by collateral

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market value vs face value

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the higher the market price of a bond, the lower the market price of a bond, the higher the yield

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bonds issued at a discount

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when you pay less than the face value

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pensions-defined contribution

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defined contribution- employers or employees contribute fixed amounts per year into the pension fund

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mortgages payable

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long-term liability

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investments in debt securities

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Bonds have a par value (or face value), but can be bought at a premium (more than face value) or at a discount (less than face value).

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short term equity investments

answer

Current Asset Dividends earned credited to Dividend Income

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long term equity investments

answer

-Non-current Asset -Cost Method (less than 20% ownership) -Equity Method (20% - 50% ownership) -Consolidated Statement Method (more than 50% ownership

question

purpose of statement of cash flows

answer

Provides information about the change in Cash for an accounting period

question

classifications of cash flows

answer

Operating -Revenue and expense cash transactions -Also include interest payments Investing -Cash Flows from property, equipment and investments -Long-Term Asset accounts Financing -Cash flow from debt and stock activity including dividends -Long-Term Liability and Owner's Equity accounts

question

determining net cash flows from investing activities

answer

-concern about non-current asset changes -Investment and Property & Equipment accounts - -May need to read footnotes or look at detail transaction to know if it was cash -Purchase of Investments or Property & Equipment decreases cash -Disposal of assets does not effect cash flow, unless cash was received during the transaction-

question

determining net cash flows from financing activites

answer

-Concern about non-current liability and owners' equity -Long-term debt, stock, and dividends paid -May need to read footnotes or look at detail transaction to know if it was cash -Converting debt to stock is not included since no cash was exchanged -Dividends paid is important; dividends declared does NOT affect cash

question

analysis of financial statements

answer

Absolute Changes of an Item -Can be an increase or decrease Just show the amount Relative Change -Absolute Change / Base Amount Trend Percentages -Relative changes over several periods Percentages of Single Items to a Total -Assets, Revenue, Expenses, etc. Ratios -Compare to prior periods, industry average, or goals

question

horizontal analysis

answer

calculating the dollar change and the relative change for two accounting periods. dollar change is different between two years (2015, 2016)

question

ratio analysis

answer

evaluate the favorableness or unfavorableness of various financial conditions.

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current ratio

answer

Current Assets / Current Liabilities

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solvency ratios

answer

measure the degree to debt financing used by a hospitality enterprise and are partial indicators of the establishments ability to meet it's long term debt obligations.

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debt-equity ratio

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Debt to equity = total liabilities/ total owner's equity

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Revenue per available room (RevPar)

answer

average daily room rate (ADR) x Occupancy rate

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