Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Chapter 17Accounting, Finance, and Cost Control

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

After Reading and Studying This Chapter, You Should Be Able to:

Describe the systems of accounting typically used by business organizations in the restaurant, lodging and club segments of the hospitality industry

Identify various accounting statements and outline the major components of an income statement, balance sheet and statement of cash flows

Review the basic role of managerial finance in hospitality operations including ratio analysis, cash management and budgeting

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

After Reading and Studying This Chapter, You Should Be Able to:

Describe features of systems used to control major direct operating costs including food, beverages, labor and other operating costs

Calculate key financial ratios used to analyze the results of operations in hospitality operations

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Accounting in the Hospitality Industry Financial recording of revenues and

expenditures to maximize profit margin Accounting department responsible for:

Tracking Reporting Communicating

Size of department depends on the size of the operation

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Uniform System of Accounting and Regulatory Agencies

Standardized accounting system for all industries Lodging Restaurants Clubs

Guidelines for better decision-making Industry-wide consistency

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Principles Established by Profession

GAAP FASB SEC

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Types of Accounting

Auditing Financial Managerial Cost Tax

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Types of Business Organizations

Proprietorship Partnership Corporation

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Finance in the Hospitality Industry

Cash inflows/outflows Find money to run a business Find money to grow a business Make investments in real assets Plan for companies’ financial future Manage cash on hand

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Financial Statements Income statement Balance sheet

Assets Liabilities Owner’s equity Equity Liquidity

Statement of cash flow

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Food and Beverage Cost Control

Greatest percentage of operating cost

Average food cost percentage – 25 to 35 percentage of food sales

Average beverage cost percentage – 16 to 26 percentage of beverage sales

Reporting and tracking is critical

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Cost Lowering Methods Specification sheets for inventory purchases Standardized recipes Detailed menu costing Tracking Security Regulating inventory Highlighting seasonal items Educating employees Include condiments, oils, dressings, etc. in plate cost Perform regular yield tests Consider employee meal cost Monitor overtime Training

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Food Cost Percentage

Cost of Foods SoldTotal Food Sales x 100

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Beverage Cost Percentage

Cost of Beverage SoldTotal Beverage Sales x 100

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Labor Costs Control

One of the largest operating costs Adequate training is essential Lower turnover helps maintain

reasonable costs Job descriptions facilitate better

hiring practices which control costs

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Labor Cost Percentage

Total Labor CostTotal Sales Revenue

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Other Operating Costs Property taxes Maintenance Music and entertainment Business fees and licenses Insurance Management fees Rent Utilities Uniforms

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Other operating Cost Percentage

Total Other Operating CostsTotal Sales Revenue

Introduction to Hospitality, Fourth EditionJohn Walker

©2006 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Trends

Increased use of technology Sarbanes-Oxley Act of 2002 Focus on increasing cost of

business risk