Chapter 17 Accounting, Finance, and Cost Control

1. Chapter 17Accounting, Finance, and Cost Control

2. After Reading and Studying This Chapter, You Should Be Able to: • Describe the systems of accounting typically used by business organizations in the restaurant, lodging and club segments of the hospitality industry • Identify various accounting statements and outline the major components of an income statement, balance sheet and statement of cash flows • Review the basic role of managerial finance in hospitality operations including ratio analysis, cash management and budgeting

3. After Reading and Studying This Chapter, You Should Be Able to: • Describe features of systems used to control major direct operating costs including food, beverages, labor and other operating costs • Calculate key financial ratios used to analyze the results of operations in hospitality operations

4. Accounting in the Hospitality Industry • Financial recording of revenues and expenditures to maximize profit margin • Accounting department responsible for: • Tracking • Reporting • Communicating • Size of department depends on the size of the operation

5. Uniform System of Accounting and Regulatory Agencies • Standardized accounting system for all industries • Lodging • Restaurants • Clubs • Guidelines for better decision-making • Industry-wide consistency

6. Principles Established by Profession • GAAP • FASB • SEC

7. Types of Accounting • Auditing • Financial • Managerial • Cost • Tax

8. Types of Business Organizations • Proprietorship • Partnership • Corporation

9. Finance in the Hospitality Industry • Cash inflows/outflows • Find money to run a business • Find money to grow a business • Make investments in real assets • Plan for companies’ financial future • Manage cash on hand

10. Financial Statements • Income statement • Balance sheet • Assets • Liabilities • Owner’s equity • Equity • Liquidity • Statement of cash flow

11. Food and Beverage Cost Control • Greatest percentage of operating cost • Average food cost percentage – 25 to 35 percentage of food sales • Average beverage cost percentage – 16 to 26 percentage of beverage sales • Reporting and tracking is critical

12. Cost Lowering Methods • Specification sheets for inventory purchases • Standardized recipes • Detailed menu costing • Tracking • Security • Regulating inventory • Highlighting seasonal items • Educating employees • Include condiments, oils, dressings, etc. in plate cost • Perform regular yield tests • Consider employee meal cost • Monitor overtime • Training

13. Food Cost Percentage Cost of Foods Sold Total Food Sales x 100

14. Beverage Cost Percentage Cost of Beverage Sold Total Beverage Sales x 100

15. Labor Costs Control • One of the largest operating costs • Adequate training is essential • Lower turnover helps maintain reasonable costs • Job descriptions facilitate better hiring practices which control costs

16. Labor Cost Percentage Total Labor Cost Total Sales Revenue

17. Other Operating Costs • Property taxes • Maintenance • Music and entertainment • Business fees and licenses • Insurance • Management fees • Rent • Utilities • Uniforms

18. Other operating Cost Percentage Total Other Operating Costs Total Sales Revenue

19. Trends • Increased use of technology • Sarbanes-Oxley Act of 2002 • Focus on increasing cost of business risk