LU3 Flashcards
What is the income statement?
It reports on the operating results of a company, that is, it shows whether the company had a profit or loss from its operations. It is historical, showing what has happened during a period of time
What are the income statement accounts?
- Revenue Classification
- Expense Classification
What is part of the revenue classification?
- Sales accounts
- Other income accounts
What is part of the expense classification?
- Cost of Sales Accounts (Perpetual inventory system)
- Purchases Accounts (Periodic inventory system)
- Operating Expenses
- Non-Operating income and expenses
- Interest, Depreciation, and Amortization
- Income Taxes Expense
Gross profit calculation:
Revenue - Cost of Sales
Cost of Food sales is always minus the:
Employee Meals
Perpetual Inventory System
- Records on the inventory are constantly being updated
- Every time inventory is purchased for storeroom, the inventory record is increased; whenever issues are made to the kitchen from the storeroom, inventory is decreased - Advantages:
- provides instant inventory status information, no urgent need to count the inventory to determine if a reorder is necessary;
- ensures internal control as the records specify exact quantities of products that should be available in the storeroom
- allows a hospitality business to completely count its inventory any time during the month
Perpetual Inventory System Accounts are:
- Inventory
- Cost of Sales
- Employee Meals Expense
What is a storeroom purchase?
goods delivered to the storeroom for later use (increase in the inventory account)
What is a direct purchase?
goods delivered directly to the kitchen to be used straight away (increases the cost of sales expense)
Calculation Ending Inventory Perpetual Inventory System
Beginning Inventory Storeroom purchases + ---------------------------------- Cost of goods available Employee meals - Cost of Sales - ---------------------------------- Ending Inventory
Periodic Inventory System
- No perpetual inventory cards are maintained in the storeroom operations, i.e. inventory ins and outs are not monitored
- Advantages: way less expensive than the perpetual system
- Disadvantages: internal control suffers greatly; required continuous checking of the actual quantities on hand and usage so that proper reorders are executed
Periodic Inventory system accounts
- Inventory
- Purchases
- Employee Meals Expense
- Employee Meals Credit
What does the purchases account entail?
- Both storeroom and direct purchases
Calculation Cost of Sales Periodic Inventory System
Beginning Inventory Purchases + --------------------------------- Cost of goods available Ending Inventory - --------------------------------- Cost of food used Employee meals - --------------------------------- Cost of Sales
