HFT 2401 Chapter 5 The Income Statement. Major Financial Statements Used by Business Income Statement – Statement of Operations – Profit & Loss Statement.
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<ul><li> Slide 1 </li> <li> HFT 2401 Chapter 5 The Income Statement </li> <li> Slide 2 </li> <li> Major Financial Statements Used by Business 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 </li> <li> Slide 3 </li> <li> Users of the Financial Statements Internal Managers of the business External Potential Investors Creditors Owners not active in managing the business </li> <li> Slide 4 </li> <li> Major Elements of the Income Statement Revenues (Sales) Cost of Goods Sold Expenses Gains and Losses Income Taxes Extraordinary Items Earnings per share </li> <li> Slide 5 </li> <li> Revenues Revenues for services are recorded when the event occurs Legal title passes from the seller to the buyer Selling price has been established Sellers obligation is complete The service has been exchanged for another asset (cash or accounts receivable) </li> <li> Slide 6 </li> <li> 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 </li> <li> Slide 7 </li> <li> 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 </li> <li> Slide 8 </li> <li> Expenses Day to Day Operational Expenses Payroll Expenses Specific Departmental Expenses Repair & Maintenance Expense Sales Expenses Administrative Expenses Other Undistributed Expenses </li> <li> Slide 9 </li> <li> 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 </li> <li> Slide 10 </li> <li> 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) </li> <li> Slide 11 </li> <li> 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 </li> <li> Slide 12 </li> <li> 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 </li> <li> Slide 13 </li> <li> 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 </li> <li> Slide 14 </li> <li> 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 </li> <li> Slide 15 </li> <li> Income Statement per USALI Three major sections Operated Departments Undistributed Operating Expenses Other Management fees Fixed charges Gains / losses Income Taxes </li> <li> Slide 16 </li> <li> 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 </li> <li> Slide 17 </li> <li> Undistributed Operating Expenses Administrative and General Human Resources Information Systems Security Sales and Marketing Franchise Fees Transportation Property Operations and Maintenance Utilities </li> <li> Slide 18 </li> <li> Other Expenses Management fees Fixed Expenses Capacity Costs Rent Property Taxes (Real Estate & Personal Property) Insurance Interest Expense Capital Leases Depreciation and Amortization </li> <li> Slide 19 </li> <li> 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 </li> <li> Slide 20 </li> <li> 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 </li> <li> Slide 21 </li> <li> Vertical Analysis Example Rooms Revenue500,000 50% Food Revenue100,000 10% Beverage Revenue 200,000 20% Other Revenue200,000 20% Total Revenue 1,000,000 100% Expenses Room Expenses100,000 10% Food Expenses 50,000 5% Beverage Expenses 70,000 7% Other Expenses100,000 10% Total Expenses 320,000 32% Net Income 680,000 68% </li> <li> Slide 22 </li> <li> Homework Assignment Problem 1 Problem 2 Problem 5 Problem 9 Problem 10 Problem 11 </li> </ul>
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