Accounting & Financial Management

1. Accounting & Financial Management Introduction to Managerial Accounting Larry Ross, Ph.D. Barnett School of Business & Free Enterprise Florida Southern College @ Lakeland, FL

2. Learning Objectives At the end of this session you will be able to: • Relate accounting’s role to club management • Determine the financial “health” of the club • Assess the club’s level of financial performance • Apply the CVP model as a decision-making tool • Compare and contrast the advantages and disadvantages of leasing 2014 BMI II ~ Managerial Accounting

3. Sources of Information • Accounting for Club Operations Ch. 2,5,6,9 & 11 • Contemporary Club Management 3rd ed. Ch. 11 • Uniform System of Financial Reporting for Clubs • White Papers on Club Management, VIII:16 2014 BMI II ~ Managerial Accounting

4. 4 Major Topics • Key Accounting Terms & Principles • Financial analysis using Ratios • Decision-making with CVP Analysis • Impact of the decision to lease 2014 BMI II ~ Managerial Accounting

5. The Accounting Function • Information-oriented • External Users • Internal Uses • Support Function 2014 BMI II ~ Managerial Accounting

6. 6 Branches of Accounting • Financial Accounting • Cost Accounting • Managerial Accounting • Tax Accounting • Auditing • Accounting Info Systems 2014 BMI II ~ Managerial Accounting

7. Generally Accepted Accounting Principles (GAAP) • Cost Principle • Going Concern • Unit of Measurement • Objective Evidence • Full Disclosure 2014 BMI II ~ Managerial Accounting

8. Generally Accepted Accounting Principles (GAAP) • Consistency • Matching • Conservatism • Materiality • Cash Basis vs. Accrual 2014 BMI II ~ Managerial Accounting

9. Accounting Basics Fundamental Accounting Equation (A = L + ME) • Assets • Liabilities • Member’s Equity • Permanent • Temporary 2014 BMI II ~ Managerial Accounting

10. Typical ASSET Accounts • Cash • Accounts Receivable • Food & Beverage Inventory • Prepaid Expenses • Fixed Assets (Building & Equipment) 2014 BMI II ~ Managerial Accounting

11. Typical Liability Accounts • Accounts Payable • Accrued Expenses • Unearned Income • Note Payable • Mortgage Payable 2014 BMI II ~ Managerial Accounting

12. Typical Equity Accounts • Capital Stock • Designated net Assets • Undesignated net Assets 2014 BMI II ~ Managerial Accounting

13. Typical Revenue Accounts • Membership dues • Initiation fees • Food revenue • Beverage revenue • Rentals and other revenue 2014 BMI II ~ Managerial Accounting

14. Typical Expense Accounts • Food cost • Beverage cost • Entertainment expense • Administrative & general • Energy costs 2014 BMI II ~ Managerial Accounting

15. The Balance Sheet Also called the Statement of Financial Position

16. Statement of Financial Position • “Snapshot” of account balances • A = L + OE • Balanced via the Proprietorship Accounts • Indicates financial “health” 2014 BMI II ~ Managerial Accounting

17. What can We Learn from the Statement of Financial Position • Horizontal Analysis • Vertical Analysis • Base-year Comparisons • Ratio Analysis 2014 BMI II ~ Managerial Accounting

18. The Income Statement Also called the Statement of Activities

19. Statement of Activities • “Video” of financial activity • Profit = Revenue – Expenses • Closed-out to Member’s Equity • Indicates financial performance 2014 BMI II ~ Managerial Accounting

20. What can We Learn from the Statement of Activities • Departmental Statements • Operating Statistics • Multi-year trends • Geographic & size divisions • Analysis of Income Statement 2014 BMI II ~ Managerial Accounting

21. Statement of Cash Flows “…how much cash was provided from operations, how much from debt, how much came from memberships, and how much went to purchase assets.”

22. Classification of Cash Flows • Operating Activities • Investing Activities • Financing Activities 2014 BMI II ~ Managerial Accounting

23. Practice Problem #1 Evaluate the financial health and the financial performance of a private club (refer to handout)

24. Problem #1 Discussion • Is the WWCC financially “healthy”? • How would you rate the 2011 financial results of the WWCC? • What is the biggest financial challenge facing the WWCC? 2014 BMI II ~ Managerial Accounting

25. Ratio Analysis “. . .interpret the reported facts to discover aspects. . . that could otherwise go unnoticed.”

26. Ratio Analysis Four Key Elements: 2Indicators – Performance & Health 3Sources of Information 3Groups of Users 5Types of Ratios 2014 BMI II ~ Managerial Accounting

27. Ratio Analysis Standards of Comparison • Historical Past • Industry Averages • Budget 2014 BMI II ~ Managerial Accounting

28. Ratio Analysis 3 Different Users – different uses • Creditors • Secured • Unsecured • Owners/Members • Managers 2014 BMI II ~ Managerial Accounting

29. 5 Classes of Ratios • Liquidity: short-term • Solvency: long-term • Activity: productivity • Profitability: conversion • Operating: industry-specific 2014 BMI II ~ Managerial Accounting

30. Ratio Analysis: Liquidity • Current Ratio • Acid-test Ratio • Accounts Receivable Turnover • Average Collection Period 2014 BMI II ~ Managerial Accounting

31. Ratio Analysis: Solvency • Solvency Ratio • Debt-to-Equity • Number times Interest Earned • Fixed Charge Coverage 2014 BMI II ~ Managerial Accounting

32. Ratio Analysis: Activity • Inventory Turnover • Fixed Asset Turnover • Total Asset Turnover • Paid Occupancy • Rounds of Golf 2014 BMI II ~ Managerial Accounting

33. Ratio Analysis: Profitability • Gross Profit Margin • Operating Efficiency Ratio • Return on Assets • Return on Member’s Equity 2014 BMI II ~ Managerial Accounting

34. Ratio Analysis: Operating • Sales Mix • Average Food Check • Food Cost Percent • Beverage Cost Percent • Labor Cost Percent 2014 BMI II ~ Managerial Accounting

35. Practice Problem #2 Analyze the financial health and financial performance of the Whistling Wind Country Club using all 5 classes of ratios.

36. Problem #2 Discussion Grade the WWCC in each area • Liquidity • Solvency • Activity • Profitability • Operating 2014 BMI II ~ Managerial Accounting

37. Applying Cost Concepts “. . . Something of value given up in order to achieve a specific outcome.”

38. Cost/Volume/Profit Analysis C/V/P is an expression of the relationship between various costs, sales volume, and profit. 2014 BMI II ~ Managerial Accounting

39. C/V/P Assumptions • Fixed costs remain fixed. • Variable costs vary in direct proportion to volume. • Revenues vary in direct proportion to volume. • Mixed costs can be divided. • Joint costs can be allocated. • Only considers quantitative factors. 2014 BMI II ~ Managerial Accounting

40. C/V/P Relationships $ • Revenue • Total Cost • Variable Cost • Fixed Cost Volume 2014 BMI II ~ Managerial Accounting

41. C/V/P Equations • Income = Revenue - Expenses I = R - E • Revenue = Price * Quantity R = P * Q • Expenses = Variable Cost + Fixed E = (V* Q) + F • I = (P*Q) - [(V*Q) + F)] 2014 BMI II ~ Managerial Accounting

42. C/V/P Equations • I = (P*Q) - [(V*Q) + F)] • I = Q*(P-V) - F • IBE + F = Q*CM • Q = F CM 2014 BMI II ~ Managerial Accounting

43. Practice Problem #3 Analyze the decision to build a Wii Fitness Facility at the Whistling Wind Country Club

44. Problem #3 Discussion • How many new fitness members are necessary for the fitness facility to break even? • If you could outsource the salaried supervisor to a “Wii Pro” who charges for lessons and therefore lower the fixed costs by $40,000, how many members would be necessary (all other things stay the same) to break even? • If the board requires a 12% return on capital investments, how many new fitness facility memberships are necessary? • A study determines that at most 420 new members would join, what would the price of membership need to be? 2014 BMI II ~ Managerial Accounting

45. Lease Accounting “. . .an agreement conveying the right to use resources for specified purposes for a limited time.”

46. Advantages of Leases • Conserve working capital • Less “red tape” • Easier to change equipment • Less impact on financial ratios • Reduces need for capital budget 2014 BMI II ~ Managerial Accounting

47. Disadvantages of Leases • No beneficial residual value • Higher cost • Additional costs of early termination 2014 BMI II ~ Managerial Accounting

48. Classification of Leases • Operating Leases • Capital Leases • Title transfer provision • Bargain purchase provision • Economic life provision • Value recovery provision 2014 BMI II ~ Managerial Accounting

49. Practice Test Questions 20 items from the accounting topics that were covered. . .