Hospitality Industry Financial Accounting, Fourth Edition

[Pages:5]TABLE OF CONTENTS

Hospitality Industry Financial Accounting, Fourth Edition

Authors: Raymond S. Schmidgall and James W. Damitio ISBN: 978-0-86612-451-5

Preface............................................................................ xiii

General Ledger......................................................................... 49

About the Authors.......................................................... xiv

1 Introduction to Accounting....................................... 3 Accounting Defined................................................................. 4 Bookkeeping Versus Accounting

Branches of Accounting......................................................... 4

Organizations Influencing Accounting................................ 6

Forms of Business Organization........................................... 7 Sole Proprietorships ? Partnerships ? Limited Partnerships Limited Liability Companies ? Corporations ? S Corporations

The Accounting Function in the Hospitality Industry....... 11

Journalizing............................................................................... 52 Standard Account Forms ? Posting ? The Trial Balance Compound Journal Entries

Comprehensive Illustration--Journalizing, Posting, and Preparing a Trial Balance........................................................ 58

Summary.................................................................................... 62

Endnote, Key Terms, Review Questions.............................. 64

Problems.................................................................................... 69

3 Accounting Adjustments............................................ 81 The Need for Adjustments..................................................... 81

Principles of Accounting........................................................ 15 Cost ? Business Entity Continuity of the Business Unit (Going Concern) Unit of Measurement ? Objective Evidence ? Full Disclosure Consistency ? Matching ? Conservatism ? Materiality Revenue Recognition

Overview of Financial Statements........................................ 19 Balance Sheet ? Income Statement ? Statement of Cash Flows

Cash Versus Accrual Accounting.......................................... 23

The Fundamental Accounting Equation............................. 24 Effects of Transactions on the Accounting Equation

Summary.................................................................................... 28

Endnotes, Key Terms, Review Questions............................ 29

Problems.................................................................................... 32

2 Accounting for Business Transactions..................... 41 Accounts.................................................................................... 41 Asset Accounts ? Liability Accounts ? Owners' Equity Accounts

Debit and Credit....................................................................... 45 Mechanics of Double-Entry Accounting Recording Changes in Assets, Liabilities, and Owners' Equity Recording Changes in Revenues and Expenses ? Recording Owner's Withdrawals ? Determining Account Balances Normal Balances

Cash Versus Accrual Accounting.......................................... 82

Classification of Adjusting Entries......................................... 83

Deferral Adjustments Illustrated............................................ 84 Prepaid Insurance/Insurance Expense ? Depreciation Expense Unearned Revenues

Accrual Adjustments Illustrated............................................ 87 Accrued Wages Payable ? Accrued Utilities ? Accrued Assets

Failure to Prepare Adjustments............................................. 90

Comprehensive Illustration--Adjustments......................... 90

Summary.................................................................................... 96

Key Terms, Review Questions............................................... 98

Problems.................................................................................... 99

4 Completing the Accounting Cycle............................ 109 The Accounting Cycle............................................................. 109 Adjusted Trial Balance ? Preparation of Financial Statements Closing Entries ? Post-Closing Trial Balance

The Worksheet.......................................................................... 119

Reversing Entries...................................................................... 122

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American Hotel & Lodging Educational Institute



TABLE OF CONTENTS

Hospitality Industry Financial Accounting, Fourth Edition

Authors: Raymond S. Schmidgall and James W. Damitio ISBN: 978-0-86612-451-5

Comprehensive Illustration-- Completing the Accounting Cycle....................................... 123

6 Balance Sheet.............................................................. 209 Purposes of the Balance Sheet............................................. 209

Summary.................................................................................... 127 Limitations of the Balance Sheet.......................................... 211

Key Terms, Review Questions............................................... 128 Balance Sheet Formats........................................................... 211

Problems.................................................................................... 129 5 Income Statement....................................................... 143 Major Elements of the Income Statement.......................... 143 Relationship with the Balance Sheet.................................... 144 Sales............................................................................................ 144 Cost of Goods Sold................................................................. 145 Expenses.................................................................................... 147 Gains and Losses...................................................................... 148 Income Taxes............................................................................ 149 Extraordinary Items.................................................................. 150 Earnings per Share................................................................... 151 Income Statements for Internal and External Users......... 151 Uniform System of Accounts................................................. 153 Internal Income Statements-- A Contribution Approach....................................................... 153 Contents of the Summary Operating Statement Departmental Statements...................................................... 158 Uniform System of Accounts for Restaurants.................... 160 Statement of Retained Earnings............................................ 160 Summary.................................................................................... 164 Endnote, Key Terms, Review Questions.............................. 166 Problems.................................................................................... 168 Chapter Appendix: Departmental Schedules..................... 178

Content of the Balance Sheet............................................... 212 Current Accounts ? Noncurrent Receivables ? Investments Property and Equipment ? Other Assets ? Long-Term Liabilities Owners' Equity ? Footnotes ? Consolidated Financial Statements

Summary.................................................................................... 225

Key Terms, Review Questions............................................... 225

Problems.................................................................................... 227

Appendix: Hilton Worldwide Holdings, Inc. Consolidated Financial Statements and Sample Notes... 236

7 Specialized Journals and Subsidiary Ledgers.......... 249 Control Accounts and Subsidiary Ledgers.......................... 249 Specialized Journals................................................................ 252 Sales Journal ? Cash Receipts Journal ? Purchases Journal Cash Disbursements Journal

General Ledger......................................................................... 262

General Journal........................................................................ 262

Payroll Journal.......................................................................... 262

Specialized Journals for Lodging Operations.................... 266

Computerized Systems........................................................... 268 Hardware ? Software ? Hotel Computer Systems

Summary.................................................................................... 269

Key Terms, Review Questions............................................... 270

Problems.................................................................................... 271

8 Cash.............................................................................. 283 Internal Control of Cash......................................................... 283

Voucher System....................................................................... 285 Preparation of a Voucher

Petty Cash.................................................................................. 287

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American Hotel & Lodging Educational Institute



TABLE OF CONTENTS

Hospitality Industry Financial Accounting, Fourth Edition

Authors: Raymond S. Schmidgall and James W. Damitio ISBN: 978-0-86612-451-5

Bank Reconciliation................................................................. 289 Preparing a Bank Reconciliation Illustration of a Bank Reconciliation

Gross Method of Recording Purchases............................... 293

Net Method of Recording Purchases................................... 293

Key Terms, Review Questions............................................... 335

Problems.................................................................................... 336

11 Property, Equipment, and Other Assets................. 343 Property and Equipment......................................................... 343 Lump Sum Purchase ? Depreciation

Credit Card Sales...................................................................... 294 Intangible Assets....................................................................... 352

Integrated Cash Management for Multi-Unit Operations............................................................. 295

Summary.................................................................................... 296

Key Terms, Review Questions............................................... 296

Problems.................................................................................... 298

9 Receivables and Payables.......................................... 305 Uncollectible Accounts Expense (Bad Debts).................... 306 Direct Write-Off Method ? Allowance Method

Notes Receivable...................................................................... 310 Interest-Bearing Notes

Notes Payable........................................................................... 314 Non-Interest-Bearing Notes

Summary.................................................................................... 317

Key Terms, Review Questions............................................... 317

Problems.................................................................................... 319

10 Inventory................................................................... 325 Periodic Versus Perpetual Inventory Systems.................... 325 Taking a Physical Inventory ? Consigned Goods Transportation Costs

Inventory Valuation Methods................................................ 329 Comparison and Evaluation of Inventory Valuation Methods

Estimating Ending Inventory and Cost of Goods Sold..... 331 The Retail Method ? The Gross Profit Method

Lower of Cost or Market (LCM)............................................. 333

Other Assets.............................................................................. 353

Summary.................................................................................... 353

Endnote, Key Terms, Review Questions.............................. 354

Problems.................................................................................... 357

12 Current Liabilities and Payroll................................. 363 Notes Payable........................................................................... 364

Accounting for Payroll-Related Liabilities........................... 366 Payroll Records ? Regular Pay and Overtime Pay Payroll Journal Entries ? Reporting Tips

Other Current Liabilities.......................................................... 378 Property Taxes

Summary.................................................................................... 379

Key Terms, Review Questions............................................... 379

Problems.................................................................................... 381

13 Partnerships.............................................................. 387 Advantages of Partnerships.................................................... 387 Ease of Formation ? No Partnership Taxes ? Synergy

Disadvantages of Partnerships.............................................. 388 Limited Life ? Mutual Agency ? Unlimited Liability

General Versus Limited Partnerships................................... 388

Partners' Capital and Drawing Accounts............................. 389

Formation of a Partnership.................................................... 389 Division of Income

Perpetual Inventory System................................................... 333 Summary.................................................................................... 334

Admission of a New Partner.................................................. 392 Withdrawal of a Partner.......................................................... 395

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American Hotel & Lodging Educational Institute



TABLE OF CONTENTS

Hospitality Industry Financial Accounting, Fourth Edition

Authors: Raymond S. Schmidgall and James W. Damitio ISBN: 978-0-86612-451-5

Liquidation of a Partnership................................................... 395 Classifying Bonds..................................................................... 427

Summary.................................................................................... 398 Other Features of Bonds........................................................ 428

Key Terms, Review Questions............................................... 398 Problems.................................................................................... 400 14 Corporate Accounting............................................. 407 Financial Statements................................................................ 407 Advantages and Disadvantages of the Corporation......... 407 Taxes........................................................................................... 408 Organizational Structure........................................................ 408 Forming a Corporation........................................................... 409 Common Stock........................................................................ 409 Dividends................................................................................... 410 Retained Earnings.................................................................... 411 Stock Subscription Plan.......................................................... 412 Preferred Stock......................................................................... 413 Cash Dividends Compared to Stock Dividends................. 414 Stock Splits................................................................................ 415 Treasury Stock........................................................................... 415 Book Value per Share of Common Stock........................... 416 Book Value Versus Market Value per Share Summary.................................................................................... 417 Key Terms, Review Questions............................................... 417 Problems.................................................................................... 419 15 Bonds, Leases, and Mortgages Payable.................. 425 Disadvantages and Advantages of Bond Financing.......... 426 Disadvantages of Bond Financing Advantages of Bond Financing

Journal Entries for Issuance of Bonds................................. 428 Bonds Sold Between Interest Payment Dates

Market Value Versus Face Value........................................... 429 Bonds Issued at a Discount ? Bonds Issued at a Premium

Year-End Adjusting Entries for Bonds Payable.................. 431

Effective Interest Rate Method of Bond Amortization..... 432

Bond Sinking Fund................................................................... 433

Convertible Bonds................................................................... 433

Retirement of Bonds............................................................... 434

Leases......................................................................................... 434

Pensions..................................................................................... 435

Mortgages Payable................................................................... 436

Summary.................................................................................... 437

Key Terms, Review Questions............................................... 437

Problems.................................................................................... 439

16 Investments in Corporate Securities...................... 445 Accounting for Investments.................................................. 445 Investments in Debt Securities ? Short-Term Equity Investments Long-Term Equity Investments

Valuation of Investments........................................................ 451 Held-to-Maturity Securities ? Trading Securities Available-for-Sale Securities

Summary.................................................................................... 453

Key Terms, Review Questions............................................... 453

Problems.................................................................................... 455

17 Statement of Cash Flows.......................................... 463 The Purpose of the Statement of Cash Flows................... 463

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American Hotel & Lodging Educational Institute



TABLE OF CONTENTS

Hospitality Industry Financial Accounting, Fourth Edition

Authors: Raymond S. Schmidgall and James W. Damitio ISBN: 978-0-86612-451-5

Classification of Cash Flows.................................................. 465

Conversion of Accrual Income to Net Cash Flows from Operations....................................................................... 467 Direct and Indirect Methods

Preparing the SCF.................................................................... 470 Step 1: Determining Net Cash Flows from Operating Activities Step 2: Determining Net Cash Flows from Investing Activities Step 3: Determining Net Cash Flows from Financing Activities Step 4: Presenting Cash Flows by Activity on the SCF Interpreting the Results

Accounting for Other Transactions...................................... 479

Summary.................................................................................... 481

Key Terms, Review Questions............................................... 481

Problems.................................................................................... 482

Profitability Ratios.................................................................... 521 Profit Margin ? Gross Operating Profit Margin Ratio Gross Operating Profit per Available Room ? EBITDA Margin Ratio Return on Assets ? Return on Owners' Equity ? Earnings per Share Price Earnings Ratio ? Viewpoints Regarding Profitability Ratios

Operating Ratios....................................................................... 527 Mix of Sales ? Average Daily Rate ? Revenue per Available Room Average Food Service Check ? Food Cost Percentage Beverage Cost Percentage ? Labor Cost Percentage Limitations of Ratio Analysis

Summary.................................................................................... 532

Endnote, Key Terms, Review Questions.............................. 535

Problems.................................................................................... 539

Index................................................................................ 551

18 Analysis and Interpretation of Financial Statements..................................................... 495 Analysis of Financial Statements........................................... 495

Horizontal Analysis................................................................... 498

Vertical Analysis........................................................................ 500

Trend Analysis........................................................................... 501

Request a review copy of Hospitality Industry Financial Accounting, Fourth Edition at desk-copy

Ratio Analysis............................................................................ 503 Ratio Standards ? Purposes of Ratio Analysis ? Average Versus Ending Value ? Classes of Ratios

Liquidity Ratios.......................................................................... 506 Current Ratio ? Acid-Test Ratio Operating Cash Flows to Current Liabilities Ratio Accounts Receivable Turnover ? Average Collection Period

Solvency Ratios......................................................................... 510 Debt-Equity Ratio ? Long-Term Debt to Total Capitalization Ratio Debt Service Coverage Ratio Number of Times Interest Earned Ratio Fixed Charge Coverage Ratio Operating Cash Flows to Total Liabilities Ratio

Activity Ratios............................................................................ 514 Inventory Turnover ? Property and Equipment Turnover Asset Turnover ? Paid Occupancy Percentage and Seat Turnover Complimentary Occupancy ? Occupancy Percentage Average Occupancy per Room ? Multiple Occupancy

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