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Chapter 2Chapter 2
The Balance SheetThe Balance Sheet
HFT 3431HFT 3431
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Questions Answered by Questions Answered by Balance SheetBalance Sheet
• Amount of Cash on Hand?Amount of Cash on Hand?
• What is the Total Debt?What is the Total Debt?
• What is Funding Mix?What is Funding Mix?
• How Much is Owed to the Hotel?How Much is Owed to the Hotel?
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Questions Answered by Questions Answered by Balance SheetBalance Sheet
• What are the Tax Liabilities?What are the Tax Liabilities?
• Can Current Debt be Paid?Can Current Debt be Paid?
• What is the Financial Strength?What is the Financial Strength?
• How Much have Stockholders How Much have Stockholders Invested in the Assets?Invested in the Assets?
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Uniform System of Uniform System of AccountsAccounts
• Standardized Accounting SystemStandardized Accounting System
• Industry DrivenIndustry Driven
• Basic FormatsBasic Formats
• Departmental Statement and Departmental Statement and SchedulesSchedules
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Uniform System of Uniform System of AccountsAccounts
• Explanations and DiscussionsExplanations and Discussions
• Allows Comparison - Other Allows Comparison - Other Operations and SelfOperations and Self
• Can be Used by Any Size Can be Used by Any Size OperationOperation
• Property Level Designed UseProperty Level Designed Use
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Balance Sheet LimitationsBalance Sheet Limitations
• Does Not Reflect Current Values Does Not Reflect Current Values of Assets (Booked According to of Assets (Booked According to Cost Principle)Cost Principle)
• Does Not Include Some Things Does Not Include Some Things of Value Such as Personnel, of Value Such as Personnel, Location, Customer Base, Location, Customer Base, GoodwillGoodwill
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Balance Sheet LimitationsBalance Sheet Limitations
• Becomes Quickly Outdated Becomes Quickly Outdated (static, not dynamic)(static, not dynamic)
• Some Account Balances are Some Account Balances are Estimates Such as Depreciation Estimates Such as Depreciation and Estimates for Uncollectiblesand Estimates for Uncollectibles
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Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial
PositionPosition
• Assets = Liabilities + EquityAssets = Liabilities + Equity
• Statement of Assets, Liabilities, Statement of Assets, Liabilities, and Owners’ Equity at a Point in and Owners’ Equity at a Point in TimeTime
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Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial
PositionPosition
• AssetsAssets
Current AssetsCurrent Assets
Noncurrent ReceivablesNoncurrent Receivables
InvestmentsInvestments
Property and EquipmentProperty and Equipment
Other AssetsOther Assets
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Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial
PositionPosition
• LiabilitiesLiabilities
Current LiabilitiesCurrent Liabilities
Long Term DebtLong Term Debt
Deferred Income TaxesDeferred Income Taxes
Commitments / ContingenciesCommitments / Contingencies
Other Long-Term LiabilitiesOther Long-Term Liabilities
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Balance Sheet - The Balance Sheet - The Statement of Financial Statement of Financial
PositionPosition
• Owners’ EquityOwners’ Equity
Capital StockCapital Stock
Additional Paid In CapitalAdditional Paid In Capital
Retained EarningsRetained Earnings
Treasury StockTreasury Stock
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Balance Sheet Formats and Balance Sheet Formats and StructureStructure
• Account Format - Assets on Left Account Format - Assets on Left and Liabilities and Equity on and Liabilities and Equity on Right (page 46)Right (page 46)
• Report Format - Assets First Report Format - Assets First Followed by Liabilities and Followed by Liabilities and Equity (page 47)Equity (page 47)
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Balance Sheet Formats and Balance Sheet Formats and StructureStructure
• Current Assets - Converted to Current Assets - Converted to Cash or Used in Operation in Cash or Used in Operation in One Year or Normal Operating One Year or Normal Operating Cycle Cycle
• Listed in Order of Liquidity Listed in Order of Liquidity
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Balance Sheet Formats and Balance Sheet Formats and StructureStructure
• Cash (All Forms)Cash (All Forms)
• Marketable SecuritiesMarketable Securities
• ReceivablesReceivables
• InventoriesInventories
• Prepaid ExpensesPrepaid Expenses
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Noncurrent AssetsNoncurrent Assets
• Noncurrent Receivables - not Noncurrent Receivables - not expected to be collected within expected to be collected within one year - owners are shown one year - owners are shown separateseparate
• Investments - securities, land not Investments - securities, land not in use, and affiliate advances not in use, and affiliate advances not to be collected within one yearto be collected within one year
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Noncurrent AssetsNoncurrent Assets
• Property and Equipment - Fixed Property and Equipment - Fixed Assets, Capital Leases - Less Assets, Capital Leases - Less accumulated depreciationaccumulated depreciation
• Smallwares - New USOA Smallwares - New USOA Recommends to Expense or Recommends to Expense or Write off Over 3 YearsWrite off Over 3 Years
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Noncurrent AssetsNoncurrent Assets
• Other Assets - Deferred Charges, Other Assets - Deferred Charges, Security DepositsSecurity Deposits
• Preopening Expenses - New Preopening Expenses - New USOA Recommends to Expense USOA Recommends to Expense in Current Period in Current Period
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Other AssetsOther Assets
• GoodwillGoodwill
• Cash Surrender Value of Life Cash Surrender Value of Life InsuranceInsurance
• Deferred ChargesDeferred Charges
• Possibly Deferred Income TaxesPossibly Deferred Income Taxes
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Balance Sheet Formats and Balance Sheet Formats and StructureStructure
• Current Liabilities - Obligations Current Liabilities - Obligations expected to be Satisfied in One expected to be Satisfied in One Year or Normal Operating CycleYear or Normal Operating Cycle
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Current Liability Current Liability PresentationPresentation
• PayablesPayables
• Advance DepositsAdvance Deposits
• Current Maturities of Long Term Current Maturities of Long Term DebtsDebts
• Dividends PayableDividends Payable
• Income Taxes PayableIncome Taxes Payable
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Long Term LiabilitiesLong Term Liabilities
• Obligations Beyond One YearObligations Beyond One Year
• Notes PayableNotes Payable
• Mortgages PayableMortgages Payable
• Bonds PayableBonds Payable
• Capitalized Lease ObligationsCapitalized Lease Obligations
• Possibly Deferred Income TaxesPossibly Deferred Income Taxes
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Owners’ EquityOwners’ Equity
• Preferred Stock, Par @ $$$Preferred Stock, Par @ $$$
• Shares AuthorizedShares Authorized
• Shares IssuedShares Issued
• Common Stock, Par @ $$$Common Stock, Par @ $$$
• Shares AuthorizedShares Authorized
• Shares IssuedShares Issued
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Owners’ EquityOwners’ Equity
• Treasury StockTreasury Stock
• Additional Paid in CapitalAdditional Paid in Capital
• Retained EarningsRetained Earnings
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Owners’ EquityOwners’ Equity
• Sole Proprietorship CapitalSole Proprietorship Capital
• Partnership - Show Each Partnership - Show Each Owner’s CapitalOwner’s Capital
• Withdrawal AccountsWithdrawal Accounts
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FootnotesFootnotes
• Significant Accounting PoliciesSignificant Accounting Policies
• Accounts and Notes ReceivableAccounts and Notes Receivable
• InventoriesInventories
• InvestmentsInvestments
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FootnotesFootnotes
• Property and EquipmentProperty and Equipment
• Current LiabilitiesCurrent Liabilities
• Long Term DebtLong Term Debt
• Capital StockCapital Stock
• Employee Benefit PlansEmployee Benefit Plans
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FootnotesFootnotes
• LeasesLeases
• Segments of BusinessSegments of Business
• Supplemental Financial Supplemental Financial InformationInformation
• Commitment/Contingent LiabilityCommitment/Contingent Liability
• Income TaxesIncome Taxes
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Balance Sheet AnalysisBalance Sheet Analysis
• Comparative Statements or Comparative Statements or Horizontal Horizontal AnalysisAnalysis
• Compute Absolute Change Compute Absolute Change (dollar difference)(dollar difference)
• Compute Relative Change Compute Relative Change (percentage difference)(percentage difference)
• Investigate Significant DifferencesInvestigate Significant Differences
• Internal AnalysisInternal Analysis
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Assets 2000 1999 $ %A B C D
Current Assets (A - B) (C / B) Cash 27,000 21,000 6,000 28.57% Marketable Securities (net) 100,000 81,000 19,000 23.46% Accounts Receivable 120,000 90,000 30,000 33.33% Inventories 12,000 17,000 (5,000) -29.41% Prepaid Expenses 10,000 12,000 (2,000) -16.67%
Total Current Assets 269,000 221,000 48,000 21.72%
Investments 40,000 35,000 5,000 14.29%
Property Plant Equipment Land 75,000 68,500 6,500 9.49% Buildings 880,000 850,000 30,000 3.53% Furniture & Equipment 200,000 190,000 10,000 5.26%
1,155,000 1,108,500 46,500 4.19% Less Accum Depr (381,000) (320,000) (61,000) 19.06% Smallwares 20,500 20,500 - 0.00%
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Balance Sheet AnalysisBalance Sheet Analysis• Common Size Statements or Common Size Statements or Vertical Vertical
AnalysisAnalysis
• Total Assets Equal 100%Total Assets Equal 100%
• Total Liabilities and Equity Equals Total Liabilities and Equity Equals 100%100%
• Each Individual Account is Shown as a Each Individual Account is Shown as a Percentage of the Total AssetsPercentage of the Total Assets
• Compare to Industry, Like Businesses Compare to Industry, Like Businesses or Selfor Self
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Assets 2000 1999 2000% 1999%
Current Assets Cash 27,000 21,000 2.45% 1.97% Marketable Securities (net) 100,000 81,000 9.06% 7.61% Accounts Receivable 120,000 90,000 10.87% 8.45% Inventories 12,000 17,000 1.09% 1.60% Prepaid Expenses 10,000 12,000 0.91% 1.13%
Total Current Assets 269,000 221,000 24.38% 20.75%
Investments 40,000 35,000 3.62% 3.29%
Property Plant Equipment Land 75,000 68,500 6.80% 6.43% Buildings 880,000 850,000 79.75% 79.81% Furniture & Equipment 200,000 190,000 18.12% 17.84%
1,155,000 1,108,500 104.67% 104.08% Less Accum Depr (381,000) (320,000) -34.53% -30.05% Smallwares 20,500 20,500 1.86% 1.92%
Total PPE 794,500 809,000 72.00% 75.96%
Total Assets (A) 1,103,500 1,065,000 100.00% 100.00%
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Balance Sheet AnalysisBalance Sheet Analysis
• Base Year ComparisonsBase Year Comparisons
• Series of YearsSeries of Years
• Compared to a Base YearCompared to a Base Year
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HOMEWORKHOMEWORK
• PROBLEM 5PROBLEM 5
• USE THE NUMBERS IN USE THE NUMBERS IN PROBLEM 13 TO PREPARE PROBLEM 13 TO PREPARE COMMON SIZE & COMPARATIVE COMMON SIZE & COMPARATIVE BALANCE SHEETS – IGNORE BALANCE SHEETS – IGNORE INSTRUCTIONS IN PROBLEMINSTRUCTIONS IN PROBLEM