1 / 22

HFT 2401

HFT 2401. Chapter 5 The Income Statement. Income Statement Statement of Operations Profit & Loss Statement Reports Revenues and Expenses Covers a period of time. Balance Sheet Statement of Financial Position Covers a particular point in time Static in nature.

robert-harrell
Download Presentation

HFT 2401

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. HFT 2401 Chapter 5 The Income Statement

  2. Income Statement Statement of Operations Profit & Loss Statement Reports Revenues and Expenses Covers a period of time Balance Sheet Statement of Financial Position Covers a particular point in time Static in nature Major Financial Statements Used by Business

  3. Users of the Financial Statements • Internal – Managers of the business • External • Potential Investors • Creditors • Owners not active in managing the business

  4. Major Elements of the Income Statement • Revenues (Sales) • Cost of Goods Sold • Expenses • Gains and Losses • Income Taxes • Extraordinary Items • Earnings per share

  5. Revenues • Revenues for services are recorded when the event occurs • Legal title passes from the seller to the buyer • Selling price has been established • Seller’s obligation is complete • The service has been exchanged for another asset (cash or accounts receivable)

  6. Cost of Goods Sold • Goods that are purchased for resale are initially recorded as inventory • When they are sold, they are transferred to the Cost of Goods Sold expense account

  7. Cost of Goods Sold Calculation • Beginning Inventory • + Purchases • = Goods Available for Sale • - Ending Inventory • = Cost of Goods Used • + Transfers in • - Transfers out • = Cost of Goods Sold

  8. Expenses • Day to Day Operational Expenses • Payroll Expenses • Specific Departmental Expenses • Repair & Maintenance Expense • Sales Expenses • Administrative Expenses • Other Undistributed Expenses

  9. Gains & Losses • Gains – Increases in assets, reductions in liabilities or a combination of both resulting from incidental transactions • ie: Sale of used equipment • Losses – Decreases in assets, increases in liabilities or a combination of both resulting from incidental transactions • ie: Storm Damage Deductibles

  10. Income Taxes • Based on the relevant revenues and expenses • Usually a variance in taxes booked and taxes paid – due to various accruals • Recorded as deferred income taxes (liability)

  11. Extraordinary Items • Must meet two criteria • Must be of a high degree of abnormality and be clearly unrelated to the ordinary and typical activities of the business • Infrequent occurrence – must not be reasonably expected to occur again

  12. Earnings per Share • Total net earnings of the business for each common share outstanding • EPS = Net Income Common Shares Outstanding • Only used for business organized as corporations or LLC

  13. Income Statements for External Users • Usually contain only summary detail about operational results • Sales (total) by segment • Expenses (total) by segment • Operating profit by segment • Overhead expenses (total) • Interest Expense • Interest Income • Income before taxes • Provision for taxes • Net income • Earnings per share

  14. Income Statements for Internal Users • In addition to summary information, internal users require detailed departmental statements listing each individual line item • Departmental statements are also known as schedules • Uses the Uniform System of Accounts for the Lodging Industry (USALI) • Allows better comparisons • Based on responsibility accounting

  15. Income Statement per USALI • Three major sections • Operated Departments • Undistributed Operating Expenses • Other • Management fees • Fixed charges • Gains / losses • Income Taxes

  16. Operated Departments • Reports net revenue by department for every major producing department • Revenues • - Allowances • - Cost of Goods Sold • - Payroll and Related Expenses • - Specific Departmental Expenses • = Departmental Net Income

  17. Undistributed Operating Expenses • Administrative and General • Human Resources • Information Systems • Security • Sales and Marketing • Franchise Fees • Transportation • Property Operations and Maintenance • Utilities

  18. Other Expenses • Management fees • Fixed Expenses – Capacity Costs • Rent • Property Taxes (Real Estate & Personal Property) • Insurance • Interest Expense • Capital Leases • Depreciation and Amortization

  19. Statement of Retained Earnings • Used for corporations • Similar to statement of owners equity Beginning Retained Earnings + Net Income - Net Loss - Dividends Declared + (-) Prior Period Adjustments = Current Retained Earnings Balance

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

  21. Vertical Analysis Example Rooms Revenue 500,000 50% Food Revenue 100,000 10% Beverage Revenue 200,000 20% Other Revenue 200,000 20% Total Revenue 1,000,000 100% Expenses Room Expenses 100,000 10% Food Expenses 50,000 5% Beverage Expenses 70,000 7% Other Expenses 100,000 10% Total Expenses 320,000 32% Net Income 680,000 68%

  22. Homework Assignment • Problem 1 • Problem 2 • Problem 5 • Problem 9 • Problem 10 • Problem 11

More Related