HFT 3431

1. HFT 3431 Chapter 3 The Income Statement

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

3. Income Statement • Reports on a Period of Time • Departmental Income Statements • Uniform System of Accounts

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

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

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

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

8. Elements of Income Statement • Internal Users - Management • External Users - Summary Statement

9. Uniform System of Accounts • Standardized Accounting System • Industry Driven • Basic Formats • Departmental Statement and Schedules

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

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

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

13. Contents of the Income Statement • Other Direct Expenses • Departmental Income – Net Department Revenues Less Departmental Expenses

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

15. Contents of the Income Statement • Administrative and General • Data Processing • Human Resources • Transportation

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

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

18. Income Statement Analysis • Comparative Statements • Horizontal Analysis • Calculate Absolute Change (Dollar Difference) • Calculate Relative Change (Percentage Difference) • Investigate Significant Differences • Internal Analysis

19. Horizontal Analysis Example

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

21. Vertical Analysis Example

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

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

24. 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

25. Adjustments • Intraunit transfers • Interunit transfers • Grease sales • Steward sales • Gratis to bars

26. Adjustments • Promotion expenses • Employee meals • To General Manager • “Comps”

27. Cost of Goods Sold Example • 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

28. 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

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

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

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

32. 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)

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

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