Table of Contents

Chapter 1 - Introduction to Hospitality Accounting. 1

Characteristics of the Hospitality Industry. 1

Hotel Organizational Structure. 2

The Controller Job Description. 3

Decisions Requiring Accounting Information. 5

Financial and Managerial Accounting. 6

The Structure of this Book. 6

Chapter 2 - The System of Accounting. 10

Financial Accounting Basics. 10

Accounting Frameworks. 11

Accounting Principles. 12

The Accounting Cycle. 14

Accounting Transactions. 14

Types of Transaction Cycles. 15

Source Documents. 15

Double Entry Accounting. 16

The Accounting Equation. 17

Journal Entries. 19

The Accruals Concept 20

The Chart of Accounts. 21

Major Journal Entries. 22

The Ledger Concept 23

Posting to the General Ledger 25

General Ledger Overview.. 25

The Trial Balance. 26

The Trial Balance Format 26

The Extended Trial Balance. 28

The Realization Concept 29

Accrual Basis of Accounting. 30

Cash Basis of Accounting. 30

Converting Cash Basis to Accrual Basis Accounting. 31

Chapter 3 - The Financial Statements. 34

Income Statement Overview.. 34

The Single-Step Income Statement 37

The Multi-Step Income Statement 38

The Multi-Period Income Statement 38

Hospitality Income Statement Format 40

The Balance Sheet 42

The Common Size Balance Sheet 45

The Comparative Balance Sheet 47

The Statement of Cash Flows. 48

The Direct Method. 49

The Indirect Method. 50

Limitations of the Financial Statements. 52

Chapter 4 - Receivables and Payables Accounting. 54

Accounting for Accounts Receivable. 54

Accounting for Deposits. 56

Accounting for Cash Sales. 57

Remitting Sales Taxes. 57

The Accounts Receivable Aging Report 58

Calculating and Recording Bad Debts. 59

Direct Write-Off Method. 59

Allowance for Doubtful Accounts. 60

Accounting for Accounts Payable. 61

Accounting for Petty Cash. 64

Petty Cash Transfer Form... 64

Petty Cash Voucher 65

Petty Cash Book. 66

The 1099 Vendor. 67

Chapter 5 - Payroll Accounting. 72

Employee Time Tracking. 72

Gross Pay Calculations. 73

Hourly Rate Plan. 73

Overtime. 74

Tips. 75

Types of Payroll Taxes. 77

Social Security Tax. 77

Medicare Tax. 78

Unemployment Taxes. 78

Income Tax Withholdings. 79

Benefits and Other Deductions. 80

Net Pay. 81

Remitting Payroll Taxes. 81

Types of Tax Deposit Schedules. 81

Monthly Deposit Schedule. 82

Semiweekly Deposit Schedule. 83

Federal Unemployment Deposit Schedule. 84

Remittance Method. 84

The Form 941 Quarterly Federal Tax Return. 84

State Tax Remittances. 85

Payments to Employees. 85

The Payroll Register. 86

Form W-2. 88

Payroll Journal Entries. 89

Types of Payroll Journal Entries. 89

Primary Payroll Journal Entry. 90

Accrued Wages. 91

Manual Paycheck Entry. 92

Employee Advances. 92

Accrued Vacation Pay. 93

Tax Deposits. 94

Chapter 6 - Inventory Accounting. 97

The Periodic Inventory System.. 97

The Perpetual Inventory System.. 99

The Physical Inventory Count 100

Inventory Cost Layering Overview.. 102

The First in, First Out Method. 103

The Last in, First Out Method. 104

The Weighted Average Method. 105

Estimating Ending Inventory. 107

Gross Profit Method. 107

Retail Inventory Method. 108

Cost of Food Consumed. 109

Cost of Sales Account Classifications. 109

Chapter 7 - Fixed Asset Accounting. 111

What are Fixed Assets?. 111

Fixed Asset Classifications. 112

Accounting for Fixed Assets. 113

The Capitalization Limit 113

The Base Unit 114

The Initial Measurement of a Fixed Asset 115

The Purpose of Depreciation. 116

Depreciation Concepts. 116

Accelerated Depreciation. 117

Sum-of-the-Years Digits Method. 117

Double-Declining Balance Method. 118

Straight-Line Method. 119

Units of Activity Method. 119

MACRS Depreciation. 121

The Depreciation of Land. 122

The Depreciation of Land Improvements. 123

Depreciation Accounting Entries. 123

Accumulated Depreciation. 124

Asset Derecognition. 125

Abandoned Assets. 126

Asset Disposal Accounting. 127

Chapter 8 - Interest Capitalization. 130

Overview of Capitalized Interest 130

When to Capitalize Interest 130

The Interest Capitalization Period. 131

The Capitalization Rate. 133

Calculating Interest Capitalization. 134

Chapter 9 - Debt Accounting. 137

Basic Debt Accounting. 137

The Amortization Schedule. 139

Reconciling the Debt Account 140

Chapter 10 - Income Taxes. 142

Sole Proprietorship Taxes. 142

Partnership Taxes. 145

C Corporation Taxes. 148

S Corporation Taxes. 150

Tax Reduction Strategies for Small Businesses. 153

Chapter 11 - Other Accounting Topics. 156

Startup Costs. 156

Advertising Costs. 156

Gift Cards. 157

Chapter 12 - Controls. 162

The Proper Balance of Control Systems. 162

The Nature of Risk. 164

Control Principles. 164

The Failings of Internal Controls. 166

Preventive and Detective Controls. 166

Manual and Automated Controls. 166

Constructing a System of Controls. 167

Common Fraud Risk Factors. 168

Hospitality Industry Risk Characteristics. 169

Hospitality Industry Fraud. 169

Specific Controls. 170

Controls for the Small Organization. 177

Chapter 13 - Pricing Methodologies. 180

Price Elasticity of Demand. 180

Cross Price Elasticity of Demand. 182

Pricing Perception. 183

Market-Based Pricing. 183

Dynamic Pricing. 184

Pricing Segmentation. 185

Day-to-Day Pricing Tactics. 187

Cost Markup Pricing (Meals) 188

Investment-Based Pricing (Room Rates) 190

Hubbart Formula (Room Rates) 190

Hubbart Formula (Meal Pricing) 192

Menu Engineering. 193

Contribution by Meal Period. 195

Discounting of Room Rates. 196

Room Revenue Yield Analysis. 198

Price Increase Considerations. 199

Non-Profit Pricing. 200

Chapter 14 - Ratio and Trend Analysis. 202

Interpretation of Financial Statements. 202

Horizontal Analysis. 203

Vertical Analysis. 205

Current Ratio. 206

Quick Ratio. 207

Accounts Payable Turnover Ratio. 208

Accounts Receivable Turnover Ratio. 209

Inventory Turnover Ratio. 210

Fixed Asset Turnover Ratio. 210

Sales to Working Capital Ratio. 211

Debt to Equity Ratio. 212

Fixed Charge Coverage. 212

Net Profit Ratio. 213

Return on Net Assets. 214

Hotel Operating Ratios. 214

Paid Occupancy Percentage. 214

Complimentary Occupancy Percentage. 215

Average Occupancy per Room... 216

Average Room Rate. 216

Revenue per Available Room... 217

Revenue per Available Customer 217

Hotel Market Share. 218

Restaurant Operating Ratios. 219

Seat Turnover 219

Average Food Service Check. 219

Ratio of Beverage to Food Revenue. 220

Limitations of Ratio Analysis. 220

Chapter 15 - Cost Concepts. 223

The Economics of Cost Management 223

What is Cost?. 224

Basic Cost Types. 224

Fixed Costs. 225

Variable Costs. 225

Mixed Costs. 226

Step Costs. 227

Differential Costs. 228

Discretionary Costs. 229

Committed Costs. 229

Sunk Costs. 229

The Cost Allocation Conundrum.. 230

Advantages of Cost Management 230

Chapter 16 - Cost-Volume-Profit Analysis. 234

Contribution Margin. 234

Breakeven Point 235

Margin of Safety. 238

Cost-Volume-Profit Analysis. 239

Cost-Volume-Profit Cautions. 242

Sales Mix. 242

Chapter 17 - Operations Budgeting. 246

The Advantages of Budgeting. 246

The Disadvantages of Budgeting. 247

The Operations Budget 248

Revenue Projections. 249

Expense Projections. 251

The Flexible Budget 252

Formulation of the Budget 253

The Long-Range Budget 255

Variance Analysis. 255

Types of Variances. 257

Selling Price Variance. 257

Sales Volume Variance. 257

Purchase Price Variance. 258

Material Yield Variance. 258

Labor Rate Variance. 259

Operating without a Budget 259

Chapter 18 - Capital Budgeting. 263

Overview of Capital Budgeting. 263

Time Value of Money. 263

Present and Future Value Tables. 265

Cost of Capital Derivation. 267

Cost of Debt 268

Cost of Preferred Stock. 268

Cost of Common Stock. 268

Weighted Average Cost of Capital 269

Net Present Value Analysis. 269

Terminal Value. 271

Internal Rate of Return. 272

Incremental Internal Rate of Return. 273

Profitability Index. 273

Breakeven Analysis. 274

Payback Method. 275

Real Options. 277

Capital Expenditure Proposal Analysis. 278

Information Recordation. 279

Separate Spreadsheet 279

Separate General Ledger / Subledger Accounts. 280

Separate Accounting Module. 280

Chapter 19 - The Lease or Buy Decision. 282

The Lease Arrangement 282

The Lease or Buy Decision. 282

Leasing Concerns. 283

Leasing Advantages. 284

Chapter 20 - Cash Management 287

The Difference between Net Income and Cash Flow.. 287

The Bank Reconciliation. 288

The Daily Bank Reconciliation. 290

The Cash Forecast 290

The Short-Term Cash Forecast 291

The Medium-Term Cash Forecast 293

The Need for Cash Concentration. 294

Cash Sweeping. 296

The Zero Balance Account 296

Multiple Sweep Arrangements. 297

Sweeping Rules. 297

Sweep Costs. 297

Notional Pooling. 298

Notional Pooling Problems. 298

Notional Pooling Costs. 299

Cash Concentration Best Practices. 299

Cash Concentration Alternatives. 300

Accounting for Cash Concentration Transactions. 300

Investments. 302

Accounting for Investments - Dividends and Interest Income. 304

Stock Dividends and Stock Splits. 305

Noncash Dividends. 305

Chapter 21 - Working Capital Management 308

The Cash Conversion Cycle. 308

Accounts Receivable Enhancements. 309

Credit Enhancements. 309

Billing Enhancements. 310

Collection Enhancements. 311

Accounts Receivable Policies. 312

Inventory Enhancements. 313

Inventory Policies. 313

Accounts Payable Enhancements. 313

Terms Renegotiation. 314

Early Payment Discounts. 314

Payment Processing Frequency. 315

Accounts Payable Policies. 315

Answers to Chapter Questions. 318

Glossary. 352

Index. 357

 

Final Examination.363