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Financial Statements - The Income Statement

Businesses want to be profitable and as a professional hospitality manager or owner, you
will want to operate a profitable business. The vehicle businesses use to document and
report their profits is called the income statement. In the past, some managers have referred
to the income statement as the ‘‘Profit and Loss’’ (P&L) statement and as a result that name
for it is still used by some in the hospitality industry. In this article we will simply refer to
the document by its shortened name: the Income Statement.

Long-Term and Intangible Assets

1. Describe the application of the cost principle to long-term assets.
2. Explain the concept of depreciation.
3. Compute periodic depreciation using different methods.
4. Describe the procedure for revising periodic depreciation.
5. Distinguish between revenue and capital expenditures, and explain the entries for these
expenditures.
6. Explain how to account for the disposal of a long-term asset through retirement, sale, or
exchange.
7. Contrast the accounting for intangible assets with the accounting for long-term
assets.

Accounting Principles

1. Explain the meaning of generally accepted accounting principles
and identify the key items of the conceptual framework.
2. Describe the basic objectives of financial reporting.
3. Discuss the qualitative characteristics of accounting information
and elements of financial statements.
4. Identify the basic assumptions used by accountants.
5. Identify the basic principles of accounting.
6. Identify the two constraints in accounting.
7. Understand and analyze classified financial statements.

Financial Statements - The Balance Sheet

In this article you will learn about the balance sheet. As a hospitality manager, the
ability to read and understand a balance sheet is second in importance only to that of the
income statement. As you learned, while the income statement provides a summary of a
business’s operational results over a defined period of time (for example a month or a
year), the balance sheet reflects the overall financial condition of a business on the specific
day it is prepared. Thus it can be considered a point-in-time ‘‘snapshot’’ of a business’s
value.

Sole Proprietorships, Partnerships, and Corporations (1)

1. Identify the major characteristics of a sole proprietorship.
2. Identify the major characteristics of a partnership.
3. Explain the accounting entries for the formation of a partnership.
4. Identify the bases for dividing net income or net loss.
5. Identify the major characteristics of a corporation.
6. Record the issuance of common stock.
7. Explain the accounting for treasury stock.
8. Differentiate preferred stock from common stock.
9. Prepare the entries for cash dividends and stock dividends.

Sole Proprietorships, Partnerships, and Corporations (2)

As explained, organization costs are expensed as incurred.
In contrast, assume that Athletic Rock Climbing Camp is an existing publicly
held corporation. Its $5 par value stock is actively traded at $8 per share.
The company issues 10,000 shares of stock to acquire land recently advertised
for sale at $90,000. The most clearly evident value in this noncash transaction is
the market price of the consideration given, $80,000. The transaction is recorded
as follows.
What happens when no-par stock does not have a stated value? In that case,

Basic Financial Accounting Review (1)

Every profit or nonprofit business entity requires a reliable internal system
of accountability. A business accounting system provides this accountability
by recording all activities regarding the creation of
monetary inflows of sales revenue and monetary outflows of expenses
resulting from operating activities.
The accounting system provides the financial information needed to evaluate
the effectiveness of current and past operations. In addition, the accounting
system maintains data required to present reports showing the

Understand In Financial Statement (1)

This article discusses the two major financial statements—the balance
sheet and the income statement. In hospitality operations, balance sheets
are normally prepared for an overall operation, and income statements are
prepared by each of the subordinate operating departments or divisions.
Two basic classifications of costs, direct and indirect, are incurred in a
hospitality operation.
Departmental income statements report operating costs that are classified
as direct costs, which are directly traceable to the department. Indirect

Understand In Financial Statement (2)

DISTRIBUTION OF INDIRECT EXPENSES
One controversial issue concerning the income statement is whether the indirect
expenses should be distributed to the departments. The problem arises in selecting
a rational basis on which to allocate these costs to the operating departments. Some
direct expenses might also have to be prorated between two operating departments
on some logical basis. For example, an employee in the food department serving
food to customers might also be serving them alcoholic beverages. The food department

Analysis And Interpretation Of Financial Statements

The first part of this article introduces the reader to the various
groups of people who might be interested in analyzing a company’s financial
statements. However, the rest of the article concentrates on the basic
analysis of financial statements, with the emphasis on the balance
sheet and the income statement.
Comparative horizontal financial statements present information for at
least two successive time periods shown side by side. The dollar
change and the percentage of change for each item of the financial statement