HOSP 3200 Exam 2

*What are the 2 basic methods accountants use to display the information on the balance sheet?

-Report format -Account format

What are three of the most common types of analysis?

-Vertical (common-size) analysis -Horizontal (comparative) analysis -Ratio analysis

*Stakeholders include who?

-owners -investors -lenders -creditors -managers

When using vertical analysis on a balance sheet, the business's total assets take on a value of ___ %

100%

*A horizontal analysis of a balance sheet requires how many different sets of data?

2

What does assessing average sales per guest allow a financial analyst to measure?

A chains effectiveness in increasing sales to its current guests, rather than increasing sales simply by opening additional restaurants

*What can occupancy percentage be used to compare?

A hotel's performance to previous accounting periods, to forecasted or budgeted results to similar hotels and to publish industry averages or standards.

How does guest type affect menu pricing?

A thorough analysis of who an operation's guests are, and what they value most, is critical to the success of a restaurant's pricing strategy.

*The __________ __________ for balance sheets list the assets of a company on the left side of the report and the liabilities and owner's equity accounts on the right side.

Account format

*_____________ ____________represent the amount of money owed to a business by others (such as customers).

Accounts receivable

The cost of food consumed is the what?

Actual dollar amount of all food used, or consumed by the operation.

*Goodwill is an asset that is ___________ (systematically reduced in value) over the period of time in which it will be of benefit to the business, and current GAAP recommendations are provided on how best to amortize intangible assets.

Amortized

Methods of determining asset worth: Intangible assets

Amortized value

What happens if managers feel that any non-current receivables may be uncollected, what does the USALI reccomend?

An allowance for doubtful accounts be established for this area, in a manner similar to the allowance for doubtful accounts established in the current assets portion of the balance sheet

*How do service levels affect menu pricing?

As the personal level of service increases, labor costs increase and thus, in most cases, selling prices must also be increased.

When is the balance sheet prepared?

At the end of each defined accounting period.

A ____________ ____________ represents an accountant's systematic method of documenting the value of a business's assets, liabilities, and the owner's equity on a specific date.

Balance sheet

*Why are hotel managers interested in the revenue per available customer?

Because guests may spend money on many products and services in a hotel in addition to the rooms

*Why are hotel managers and owners interested in the occupancy %?

Because it is a good measure of the hotel's effectiveness in selling rooms

*Why have balance sheets been criticized?

Because of the company assets they do not value

When could a high turnover occur?

Because sales are higher than expected, thus causing food to move faster out of inventory (good). It could also mean that significant wastage, pilferage, and spoilage might have occurred causing food to move out of inventory faster, but not due to higher sales (bad).

When does low turn over occur?

Because sales are less than expected, thus causing food to move slower out of inventory, which is bad. Or it could mean that the food and bev. manager decided to buy more inventory each time (thus, making purchases fewer times) because of discount prices due to larger purchases

*____________ _____ is valued at its historical cost regardless of its current selling price

Common stock

For corporations, ______ ______ is the balance sheet entry that represents the number of shares of stock issued (owned) multiplied by the par value (the value of the stock recorded in the company's books).

Common stock

*How do investors measure their ROI?

Compare a balance sheet from one time period, to another one from a different time period

___________ __________ are those which may reasonably be expected to be sold or turned into cash within one year (or one operating season).

Current assets

Methods of determining asset worth: Cash

Current value

Methods of determining asset worth: Accounts receivable

Estimated future value

_____ ________ _____ is most often defined as the price at which an item would change hands between a buyer and a seller without any compulsion either to buy or sell and with both having reasonable knowledge of the relevant facts.

Fair market value

Methods of determining asset worth: Investments

Fair market value or amortized cost

Methods of determining asset worth: marketable securities

Fair market value, or amortized cost

*What is a limitation of ratio analysis?

Financial ratios do not measure a company's intellectual capital assets such as brand name, potential for growth, and intellectual or human capital when assessing a company's true worth

Where do transfers commonly occur?

Food service operations that sell alcoholic beverages

___________(the difference between the purchase price of an item and its fair market value) is classified as an unidentifiable intangible asset.

Goodwill

*_____ ______ _______in the hotel business is the amount remaining when cost of sales, payroll, and other operating expenses are subtracted from revenue. For example, the costs of a hotel's lawn care services, utility bills, and even food and beverage expenses are considered when computing GOPPAR.

Gross operating profit

*How are current assets listed on the balance sheet?

In order of their liquidity

How is seat turnover data generated?

Internally

_____________ will include the value of food, beverages and supplies used by a restaurant, as well as in‐room replacement items used by a hotel.

Inventories

*What can the resulting difference tell you when a ratio is compared to a standard or goal?

It can tell managers much about the financial performance (health) of the company they are evaluating

*What type of expense are employee related meals?

Labor expense

Why do many managers feel it is important to control labor costs than product costs?

Labor, and labor related costs comprise a larger portion of their operating budgets than food and beverage products

*The unredeemed value of gift certificates and sold gift cards are recognized as a _________. As these are redeemed by their users, the appropriate amount of revenue is recognized (as a sale) and the amount of the certificate or gift card liability listed in the current liabilities section of the balance sheet is reduced by an equal amount.

Liability

*A _______ is the legal right to hold another's property to satisfy a debt. This is similar to a business's liabilities.

Lien

*How does product quality affect menu pricing?

Managers should select the quality level that best represents their guests' anticipated desires as well as your own operational goals, and then price their products accordingly

What do investors seek to do?

Maximize the return on investment (ROI) they receive

*What are some typical examples of long-term liabilities?

Mortgages, loans, and lease commitments

*___ ___________ (the term net means that something has been subtracted out) are those monies owed to the business after subtracting any amounts that may not be collectable (doubtful accounts).

Net receivables

_____ _________ receivables on a USALI formatted balance sheet represent any accounts and notes payable to a business that are not expected to be collected during the next 12 months.

Non current

_________ _______are best understood as items that will be used within a year's time, but which must be completely paid for at the time of purchase.

Prepaid expenses

Methods of determining asset worth: Property and equipment

Price paid adjusted for allowed depreciation

What are OOO (out of order) rooms?

Repairs, renovation, or construction is being done and the rooms are not sellable and must be subtracted

*The _________ ___________ for balance sheets list the assets of a company first and then the liabilities and owner's equity accounts (vertically), to prove to the reader that assets equals liabilities plus owners equity.

Report format

*What is the final entry on the owner's equity portion of the balance sheet?

Retained earnings

______ ________ refer simply to the accumulated amount of profits over the life of the business that have not been distributed as dividends.

Retained earnings

How can you achieve a high ADR?

Sacrifice of significantly lowered occupancy percentages.

How can high occupancy % be received?

Selling rooms inexpensively

_______- ______ investments include those investments such as stocks and bonds that can readily be bought sold and thus are easily converted to cash.

Short-term

What do activity ratios measure?

The activity of a companies selected assets by creating ratios that measure the number of times these assets turn over (or are replaced)

What is the balance sheet designed to show?

The amount of a business owner's free and clear ownership

What does a balance sheet let the owners of the business know?

The amount of that business which they actually "own"

*What are lenders most concerned with?

The business's ability to repay its debts

For restaurants, cost of goods consumed refers to what?

The cost of food consumed, and the cost of beverages consumed

What is beginning inventory?

The dollar value of all food on hand at the beginning of the accounting period.

What does ending inventory, sometimes called closing inventory refer to?

The dollar value of all food on hand at the end of the accounting period

What are managers most interested in?

The income statement

Methods of determining asset worth: Inventories

The lesser of current value or price paid

What do activity ratios asses?

The managers efficiency in handling inventories and long-term assets. As a result these ratios are also known as turn over ratios or efficiency ratios

What does inventory turnover refer to?

The number of times the total value of inventory has been purchased and replaced in an accounting period

What does beverage cost percentage represent?

The portion of beverage sales that was spent on beverage expenses

*What does food cost percentage represent?

The portion of food sales that was spent on food expenses

How does local competition affect menu pricing?

The price a competitor charges for his or her product can be useful information in helping managers arrive at their own selling prices.

What does RevPASH measure?

The sale-generating ability of commercial restaurants

*What is financial leverage?

The use of debt reinvested to generate an ROI that is greater than the cost of debt(interest)

*What is the purpose of computing activity ratios?

To assess the managements ability to effectively utilize the companies assets

*Why do business owner's prepare balance sheets?

To better understand the value of a business and how well its assets have been utilized to produce wealth for the business's owners

What can CPOR be used to do?

To compare one type of cost in a hotel to other hotels within a chain, a company, a region of the country, or to any other standard deemed appropriate by the hotel's managers or owners.

When an operation has multiple outlets, the cost of food sold may be affected by what?

Transfers in and out of a single unit

*_____ analysis of the balance sheet may be used to compare a unit's percentages with industry averages, other units in a corporation, or percentages from prior periods

Vertical

*What can income statements be analyzed using?

Vertical, and horizontal techniques

*How do economic conditions affect menu pricing?

When an economy is robust and growing, managers generally have a greater ability to charge higher prices for the items they sell. When a local economy is in a recession or is weakened by other events, a manager's ability to raise or even maintain prices in response to rising costs may be more limited.

*When is RevPAC helpful?

When comparing two groups of guests

When are ratios most useful?

When they compare a companies actual performance to a pervious time period, competitor company results, industry averages, or budgeted (planned for) results

*When is a ratio created?

When you divide one number by another

What is check average used to compare?

a restaurants performance to previous accounting periods, to forecasted or budgeted results, to similar restaurants, and to published industry averages or standards

How are property and equipment listed on the balance sheet?

at their original cost less their accumulated depreciation

Each percentage computed is a percent of a "common" number, which is why this type analysis is sometimes referred to as ____ _____ analysis.

common size

A horizontal analysis technique is also called a ___________ analysis

comparative

*Guest's prepaid deposits are listed as a ________ _______ (because these monies are held by the business but have not been earned at the time the business accepts the deposit).

current liability

All assets must equal _________ plus ______ __________

liabilities owners equity

___________ is defined as the ease in which current assets can be converted to cash in a short period of time (less than 12 months).

liquidity

The balance sheet is the financial document that most accurately indicates the ____________ __________ ability of a business to repay a vendor who has extended credit to that business.

long term

____ ______ _________ are those obligations of the business that will not be completely paid within the next 12 months.

long term liabilities

*While the liabilities section of the balance sheet identifies non‐owner (external) claims against the business's assets, the _____ ________ portion identifies the asset claims of the business's owners.

owners equity

Differences between the selling price and par value of stocks are reported in the _____ __ _____ portion of the balance sheet.

paid in capital

*What are business creditors concerned with?

payment

*Individual liability and owner's equity classifications are expressed as a _____ of Total Liabilities and Owner's Equity.

percentage

*When utilizing vertical analysis, individual asset categories are expressed as a ______ (fraction) of Total Assets.

percentage

Some companies also issue _________ _____ that pays its stockholders (owners) a fixed dividend

preferred stock

_________ ___ __________ includes the value of a business's land, buildings, leasehold improvements, furnishings and equipment, and the value of any construction in progress.

property and equipment

Liabilities must be ________ from the value of the business before its owners can determine the amount of their own equity (free and clear ownership)

subtracted