Chapter 5 - Balance Sheet

Question 1

what is balance sheet?

Answer 1

The balance Sheet reflects the financial position of the hospitality operation - it’s assets, liabilities, and owner’s equity - at the given date. It is the financial statement that reflects or tests and proves, the fundamental accounting equation. (Asset = Owner’s Equity + Liabilities)

Question 2

what is current ratio formula?

Answer 2

Current Asset / Current Liabilities

Question 3

what are the 4 limitations of balance sheet?

Answer 3

1. Does not reflect current value of some assets, such as property and equipment.
2. Fail to reflect many elements of value to hospitality operations
3. Limited by their static nature - they reflect the financial positions for only a moment
4. Not exact

Question 4

what are the 4 formats of balance sheet?

Answer 4

1. Current Format
2. Report Format
3. Horizontal Analysis (Comparative Balance Sheet) -
4. Vertical Analysis (Common-Size Balance Sheet)

Question 5

what is current format?

Answer 5

• Assets on the left side, Liabilities on the right side

Question 6

what is report format?

Answer 6

• Asset on top, Liabilities at bottom

Question 7

what is horizontal analysis (comparative balance sheet)?

Answer 7

Shows 2 years of balance sheet along with change in $ and %

Question 8

what is vertical analysis (Common-size balance sheet)?

Answer 8

• Shows 2 years of balance sheet along with % of total Asset / Liability section. i.e.. (Cash is 1 % of total asset)

Question 9

what is current assets?

Answer 9

Can be converted to cash within 1 year (A/R, Inventory, Cash)

Question 10

what is current liabilities?

Answer 10

Obligations that are expected to be paid with 1 year (Notes payable, A/P, Accrued Taxes, Advance Deposits)

Question 11

what is current equipment?

Answer 11

(China, glassware, silver and uniforms), expected to used within 1 year - expense over it’s life, not exceeding 1 year

Question 12

what is non-current receivable?

Answer 12

1. Investments - Debt or equity securities and ownership interests that are expected to be held on a long-term basis
2. Property and Equipment - Fixed Assets including land, building, furnishing and equipment, construction in progress, and leasehold improvements (Exception of land, all property and equipment is written off to expense (depreciation expense)

Question 13

what is other assets?

Answer 13

Intangible Assets - Goodwill
Cash Surrender value of life insurance
Deferred charges
Deferred income taxes
Other Assets (organization costs, security deposit, etc)

Question 14

what is long-term liabilities?

Answer 14

Expected to be paid beyond the next 12 month

Question 15

what are the 4 accounts of owner’s equity?

Answer 15

1. Capital Stock - Common stock / Preferred Stock
2. Additional Paid in Capital - Additional Capital
3. Retained Earnings - Earnings generated
4. Treasury Stock - Property’s own capital stock that has been repurchased but not retired