All you wanted to know about

Accounting and More

There Are Two Sides to Every Transaction Story

In the world of business, you have to give something to get something. Accountants recognize this, and that’s why every transaction has both a debit side and a credit side.

Understanding T-accounts• Debits- Recorded on the Left side of the T-account• Credits- Recorded on the Right side of the T-account

ACCOUNT NAME

DEBITS CREDITS

Example: A manager buys an oven for $8,500 cash. The transaction will be recorded as follows:

Cash Equipment

8,500 8,500

The Accounting Cycle

Transactions are recorded throughout the month.

Trial balance is prepared. Necessary adjustments are made. Information is transferred to the balance

sheet and income statement. Accounts are closed, and a new cycle

begins.

Cost of Sales FormulaOpening Inventory(Food on hand; first day of the period)

+ Purchases

- Closing Inventory (Food on hand, last day of the period)

= Cost of Sales (or food cost)

DIRECT COSTSDefinition: Expenses that are the responsibility of

a specific department

Examples Include: food purchases, supplies, and wages

INDIRECT COSTSDefinition: Expenses that are not easily charged to

any one specific department; usually distributed according to each department’s percent of total revenue

Examples Include: advertising, utilities, administrative costs, building maintenance, and energy costs

Straight-line Depreciation MethodDistributes the coast of an asset equally

over each year of its useful life.

(Cost of asset – Trade-in Value)Useful life of asset (in years)

Your Turn:A rotating oven with a purchase price of

$9,200 will be worth $400 in 4 years. How much will the oven depreciate monthly using the straight-line method?

Answer: $183(rounded)

Declining Balance Depreciation Method

The depreciation rate is greater than the straight-line rate, and no trade-in value is used this method will give the business a lower taxable income in the earlier years.

Sum-of-the Years Digits Depreciation Method

-Depreciation is accelerated by using an asset’s estimated life to determine the rate.

Just the Facts New equipment purchased: cash register system Initial cost: $14,750 Estimated Life: 6 Years Trade-in value in 6 years: $1,250 Denominator to be used: 21 Numerators to be used: 6,5,4,3,2, and 1 Fractions to be used each year:

6/21,5/21,4/21,3/21,2/21,1/21 Depreciation

Year 1:____________Year 2:____________Year 3:____________Year 4:____________Year 5:____________Year 6:____________

Answers

Year 1: $3,857 Year 2: $3,214 Year 3: $2,571 Year 4: $1,929 Year 5: $1,286 Year 6: $ 643

Units of Production Depreciation Method

Used to determine depreciation values for

those assets with specific units of

production

(Cost – Trade-in value)

Estimated units of production over useful life

An Income Statement Shows:

How a business is doing in terms of total sales and expenses.

How one period’s sales and expenses compare to those of other periods

Costs listed on a Typical Income Statement Cost of Sales Controllable expenses

-Salaries and wages

-Employee benefits

-Direct operating expenses

-Marketing

-Energy and utility services

-Administrative and general costs

-Repairs and general costs

Costs Listed on a Typical Income Statement cont.

Occupancy costs Interest expense Depreciation Overhead Income taxes

A Balance Sheet:

Demonstrates a foodservice establishment’s ability to pay its debts.

Shows what portion of profits have been retained.

Helps investors estimate the level of risk for future investments.

Capital Item

Definition- items such as land, buildings, and equipment that have a life expectancy of at least three years.

Examples

- Furniture

- Fixture

- Piece of equipment