Income StatementIncome Statement

Statement of EarningsStatement of Earnings Profit and Loss StatementProfit and Loss Statement Statement of OperationsStatement of Operations Frequency - Daily, Weekly, Frequency - Daily, Weekly,

Monthly, Quarterly, AnnuallyMonthly, Quarterly, Annually

Income StatementIncome Statement

Reports on a Period of TimeReports on a Period of TimeDepartmental Income StatementsDepartmental Income StatementsUniform System of AccountsUniform System of Accounts

Questions AnsweredQuestions Answered

How Profitable Was Business?How Profitable Was Business? What Were the Total Sales?What Were the Total Sales? How Much Was the Labor Cost?How Much Was the Labor Cost? What Was Food Cost Percent?What Was Food Cost Percent?

Questions AnsweredQuestions Answered

Are Sales In(de)creasing?Are Sales In(de)creasing?Are Expenses In(de)creasing?Are Expenses In(de)creasing?What Were Marketing Costs?What Were Marketing Costs?What Percent of Sales Is Profit?What Percent of Sales Is Profit?

Elements of Income StatementElements of Income Statement

RevenueRevenue - Sale of Goods and - Sale of Goods and Services; Investment Income; Services; Investment Income; Rental IncomeRental Income

ExpensesExpenses - Outflows to Produce - Outflows to Produce Goods; Cost of Goods Sold; Goods; Cost of Goods Sold; Labor; Controllable Expenses; Labor; Controllable Expenses;

Noncontrollable ExpensesNoncontrollable Expenses

Elements of Income StatementElements of Income Statement

Other Gains and LossesOther Gains and Losses - From - From Incidental Transactions; Acts of Incidental Transactions; Acts of NatureNature

Period Income or LossPeriod Income or Loss - - Add/Deduct To/From EquityAdd/Deduct To/From Equity

Elements of Income StatementElements of Income Statement

Internal Users - ManagementInternal Users - ManagementExternal Users - Summary External Users - Summary

StatementStatement

Uniform System of AccountsUniform System of Accounts

Standardized Accounting Standardized Accounting SystemSystem

Industry DrivenIndustry Driven Basic FormatsBasic Formats Departmental Statement and Departmental Statement and

SchedulesSchedules

Uniform System of AccountsUniform System of Accounts

Explanations and DiscussionsExplanations and DiscussionsAllows Comparison - Other Allows Comparison - Other

Operations and SelfOperations and SelfCan Be Used by Any Size Can Be Used by Any Size

OperationOperation

Uniform System of AccountsUniform System of Accounts

Property Level Designed UseProperty Level Designed UseDirect Operating Expense Based Direct Operating Expense Based

on Cost of Goods Sold, Direct on Cost of Goods Sold, Direct Labor Expense, Direct ExpensesLabor Expense, Direct Expenses

Contents of the Income StatementContents of the Income Statement

Operated DepartmentsOperated Departments Net Revenues by DepartmentNet Revenues by Department Cost of SalesCost of Sales Payroll and RelatedPayroll and Related

See page 95 for sampleSee page 95 for sample

Contents of the Income StatementContents of the Income Statement

Other Direct ExpensesOther Direct ExpensesDepartmental Income – Departmental Income –

Net Department Revenues Net Department Revenues

Less Departmental ExpensesLess Departmental Expenses

Contents of the Income StatementContents of the Income Statement

Non Operated DepartmentsNon Operated Departments Undistributed Operating Undistributed Operating

Expenses Expenses Payroll and Related and Other Payroll and Related and Other

Are Shown SeparatelyAre Shown Separately

Contents of the Income StatementContents of the Income Statement

Administrative and GeneralAdministrative and GeneralData ProcessingData ProcessingHuman ResourcesHuman ResourcesTransportationTransportation

Contents of the Income StatementContents of the Income Statement

MarketingMarketingProperty Operations and Property Operations and

MaintenanceMaintenanceEnergy CostsEnergy Costs Income After Undistributed Income After Undistributed

Operating ExpensesOperating Expenses

Contents of the Income StatementContents of the Income Statement

Other Expenses (Board Other Expenses (Board Decisions)Decisions)

Management FeesManagement Fees Fixed Charges (Capacity Costs)Fixed Charges (Capacity Costs) Other Gains or LossesOther Gains or Losses Sale of Property/EquipmentSale of Property/Equipment

Income Statement AnalysisIncome Statement Analysis

Comparative StatementsComparative Statements Horizontal AnalysisHorizontal Analysis

– Calculate Absolute Change Calculate Absolute Change (Dollar Difference)(Dollar Difference)

– Calculate Relative Change Calculate Relative Change (Percentage Difference)(Percentage Difference)

Investigate Significant DifferencesInvestigate Significant Differences Internal AnalysisInternal Analysis

A B C 2000 1999 $ %

Formula ( A - B ) C / B

Total Revenue 1,632,500 1,250,325 382,175 30.57%

Rooms Revenue 925,000 750,000 175,000 23.33% Payroll and Related Costs 225,000 145,000 80,000 55.17% Other Direct Expenses 60,000 62,500 -2,500 -4.00% Room Dept Income 640,000 542,500 97,500 17.97%

Food and Beverage Revenue 585,000 400,000 185,000 46.25% Cost of Sales 197,000 132,000 65,000 49.24% Payroll and Related Costs 215,000 185,000 30,000 16.22% Other Direct Expesnes 45,000 43,400 1,600 3.69% Food & Bev Dept Income 128,000 39,600 88,400 223.23%

Horizontal Analysis Example

Income Statement AnalysisIncome Statement Analysis

Common Size StatementsCommon Size Statements Vertical AnalysisVertical Analysis Total Revenue Equal 100%Total Revenue Equal 100% Each Expense Shown AsEach Expense Shown As

Percentage of TotalPercentage of Total Compare to Industry, Like Compare to Industry, Like

Businesses or SelfBusinesses or Self

2000 1999 2000% 1999%

Total Revenue 1,632,500 1,250,325 100.00% 100.00%

Rooms Revenue 925,000 750,000 56.66% 59.98% Payroll and Related Costs 225,000 145,000 13.78% 11.60% Other Direct Expenses 60,000 62,500 3.68% 5.00% Room Dept Income 640,000 542,500 39.20% 43.39%

Food and Beverage Revenue 585,000 400,000 35.83% 31.99% Cost of Sales 197,000 132,000 12.07% 10.56% Payroll and Related Costs 215,000 185,000 13.17% 14.80% Other Direct Expesnes 45,000 43,400 2.76% 3.47%

Vertical Analysis Example

Data Availability Data Availability

PKF Consulting - Trends in the PKF Consulting - Trends in the Hotel Industry (U.S. and Hotel Industry (U.S. and Worldwide)Worldwide)

PKF Consulting - Clubs in Town PKF Consulting - Clubs in Town and Countryand Country

Data Availability Data Availability

Arthur Andersen & Smith Travel Arthur Andersen & Smith Travel Research - The Host Report - Research - The Host Report - Hotel Operating StatisticsHotel Operating Statistics

NRA - Restaurant Industry NRA - Restaurant Industry Operations ReportOperations Report

Local Hotel OrganizationsLocal Hotel Organizations

Cost of Goods Sold CalcCost of Goods Sold Calc

Beginning InventoryBeginning Inventory

+ Purchases+ Purchases

= Goods Avail For Sale= Goods Avail For Sale

- Ending Inventory- Ending Inventory

= Cost of Goods Consumed= Cost of Goods Consumed

- Transfer Out- Transfer Out

- Employee meals- Employee meals

+ Transfer In+ Transfer In

= Cost of Goods Sold= Cost of Goods Sold

AdjustmentsAdjustments

Intraunit transfersIntraunit transfers Interunit transfersInterunit transfers Grease salesGrease sales Steward salesSteward sales Gratis to barsGratis to bars

AdjustmentsAdjustments

Promotion expensesPromotion expenses Employee mealsEmployee meals To General ManagerTo General Manager ““Comps”Comps”

Cost of Goods Sold Example

Assume:Assume:

–Beginning Inv $10,000Beginning Inv $10,000

–PurchasesPurchases $50,000$50,000

–Ending InvEnding Inv $25,000$25,000

–Room Div Emp MealRoom Div Emp Meal $15,000$15,000

–Transfer From BarTransfer From Bar $1,000$1,000

–Transfer to BanquetsTransfer to Banquets $1,500$1,500

Cost of Goods Sold Example

$10,000 Beginning Inv

$50,000 Purchases

$60,000 Goods Avail Sale

($25,000) Ending Inv

$35,000 Cost of Goods Consumed

($15,000) Room Div Emp Meal

$1,000 Transfer From Bar

($1,500) Transfer to Banquets

$19,500 Cost of Goods Sold

Cost of Food or Beverages SoldCost of Food or Beverages Sold

Food or beverage cost percent Food or beverage cost percent equals cost of goods sold divided equals cost of goods sold divided by food or beverage salesby food or beverage sales

What is reported to management?What is reported to management?

Gain or Loss CalcGain or Loss Calc

Original CostOriginal Cost

- Accumulated Depreciation- Accumulated Depreciation

= Book Value= Book Value

Sales PriceSales Price

- Book Value- Book Value

= Gain if positive= Gain if positive

= Loss if negative= Loss if negative

Gain or Loss ExampleGain or Loss Example

AssumeAssume

Purchased Truck for $10,000Purchased Truck for $10,000

Accumulated Depr is $6,000Accumulated Depr is $6,000

Sold Truck For $5,000Sold Truck For $5,000

Gain or Loss ExampleGain or Loss Example

$10,000 Purchase Price$10,000 Purchase Price

(6,000) Accum Depr(6,000) Accum Depr

4,000 Book Value4,000 Book Value

$5,000 Sales Price$5,000 Sales Price

(4,000) Book Value(4,000) Book Value

1,000 Gain1,000 Gain (Since positive) (Since positive)

Key Items To RememberKey Items To Remember

Revenues are listed Net of AllowancesRevenues are listed Net of Allowances Cost of employee meals are part of that Cost of employee meals are part of that

dept’s expenses not cost of food solddept’s expenses not cost of food sold Taxes and Benefits considered as part Taxes and Benefits considered as part

of payroll expenseof payroll expense See page 90 for the 14 Rooms Division See page 90 for the 14 Rooms Division

Major Other ExpensesMajor Other Expenses

Key Items To RememberKey Items To Remember

See pages 90 - 92 regarding See pages 90 - 92 regarding

–AdministrativeAdministrative

–SecuritySecurity

–MarketingMarketing

–TransportationTransportation

–PropertyProperty