CHAPTER 1 - A BRIEF REVIEW OF FINANCIAL STATEMENTS Flashcards
account format
A possible arrangement of a balance sheet that lists the asset
accounts on the left side of the page and the liability and owners’ equity accounts
on the right side.
accrual basis accounting
System of reporting revenues and expenses in the
period in which they are considered to have been earned or incurred, regardless
of the actual time of collection or payment.
additional paid
in capital-Payments for capital stock in excess of the stated and/
or par value of the capital stock. Also called paid-in capital in excess of par.
balance sheet
Statement of the financial position of the hospitality establishment
at a given date, giving the account balances for assets, liabilities, and ownership
equity.
base-year comparison
An analytical tool that allows a meaningful comparison
of financial statements for several periods by using a base period as a starting
point (set at 100 percent) and comparing all subsequent periods with the base.
capacity costs
Fixed charges relating to the physical plant or the capacity to provide
goods and services to guests.
capital stock
Shares of ownership of a corporation.
cash equivalents
Short-term, highly liquid investments such as U.S. Treasury
bills and money market accounts.
cash inflows
Cash received by a hospitality organization during an accounting
period.
cash outflows
Cash disbursed by a hospitality organization during an accounting
period.
common stock
Capital stock of a corporation that generally allows its holders to
have voting rights.
common-size statements
Financial statements used in vertical analysis whose
information has been reduced to percentages to facilitate comparisons.
comparative statements
The horizontal analysis of financial statements from the
current and previous periods in terms of both absolute and relative variances for
each line item.
consolidated financial statements
The combined financial statements of a parent
corporation and its subsidiary corporations.
current assets
Resources of cash and items that will be converted to cash or used
in generating income within a year through normal business operations.
current liabilities
Obligations that are due within a year.
current ratio
Ratio of total current assets to total current liabilities expressed
as a coverage of so many times; calculated by dividing current assets by current
liabilities.
daily report of operations
A frequent major report prepared for management.
departmental income statements
Supplements to the income statement that
provide management with detailed financial information for each operating
department and service center; also referred to as schedules.
direct method
One of two methods for converting net income to net cash flow from
operations. This method shows cash receipts from sales and cash disbursements for
expenses and requires that each item on the income statement be converted from an
accrual basis to a cash basis.
expenses
Costs incurred in providing the goods and services offered.
fluctuation explanation
A document providing detail not available on the balance
sheet that explains drastic changes in balance sheet items.
gain
An increase in assets, a reduction in liabilities, or a combination of both
resulting from incidental transactions and from all other transactions and events
affecting the operation during the period, except those that count as revenues or
investments by owners.
goodwill
The excess of a hospitality operation’s purchase price over the dollars
assigned to its individual assets.
horizontal analysis
Comparing financial statements for two or more accounting
periods in terms of both absolute and relative variances for each line item.
income statement
A report on the profitability of operations, including revenues
earned and expenses incurred in generating the revenues for the period of time
covered by the statement.
indirect method
One of two methods for converting net income to net cash flow
from operations. This method starts with net income and then adjusts for non-cash
items included on the income statement.
liquidity
The ability of an operation to meet its short-term (current) obligations
by maintaining sufficient cash and/or investments easily convertible to cash.
long-term liabilities
Obligations at the balance sheet date which are expected to
be paid beyond the next 12 months, or if paid in the next year, they will be paid
from restricted funds; also called non-current liabilities.
loss
A decrease in assets, an increase in liabilities, or a combination of both resulting
from incidental transactions and from other transactions and events affecting
the operation during a period, except those that count as expenses or distributions
to owners.
non-current receivables
Accounts and notes receivable that are not expected to
be collected within one year from the balance sheet date.
owners’ equity
Financial interest of the owners of a business; assets minus
liabilities.
preferred stock
Stock issued by a corporation that provides preferential treatment
on dividends, but may not give the stockholder voting rights.
report format
A possible arrangement of a balance sheet that lists assets first,
followed by liabilities and owners’ equity.
responsibility accounting
The organization of accounting information (as on
an income statement) that focuses attention on departmental results such as the
rooms and food departments.
restricted cash
Cash that has been deposited in separate accounts, often for the
purpose of retiring long-term debt.
retained earnings
An account for recording undistributed earnings of a corporation.
revenue
The amount charged to customers in exchange for goods and services.
schedules
See departmental income statements.
statement of cash flows
Explains the change in cash for the accounting period
by showing the effects on cash of a business’s operating, investing, and financing
activities for the accounting period.
summary income statement
An income statement intended for external users
that lacks the detail of supporting schedules.
treasury stock
Capital stock of a corporation that the corporation has repurchased
for future issuance.
uniform systems of accounts
Standardized accounting systems prepared by
various segments of the hospitality industry offering detailed information about
accounts; classifications; formats; the different kinds, contents, and uses of financial
statements and reports; and other useful information.
vertical analysis
Analyzing individual financial statements by reducing financial
information to percentages of a whole; that is, income statement line items are
expressed as percentages of total revenue; balance sheet assets are expressed as
percentages of total assets; and so forth.
working capital
Current assets minus current liabilities.
