what are the seven groups of users of financial statements in profit orgs?
owners, board of directors, managers, creditors, employees, gov. agencies, financial analysts
area of accounting concerned with doing independent reviews of accounting records
auditing
area of accounting focused on assembling and interpreting cost data for use by management
cost accounting
area of accounting focused on summarizing, analyzing, reporting financial transactions of orgs
financial accounting
area of accounting focused on creating reports and docs to aid managers in decision making
managerial accounting
what is GAAP?
generally accepted accounting principles
what are the principles of GAAP?
business entity concept, fundamental equation, going-concern concept, money as unit of measure, cost principle, cash vs accrual bases of accounting, matching revenues and expenses, depreciation, adequate disclosre, consistency principle, materiality principle, conservation
what is the fundamental accounting equation
assets=liabilities+owners equity
cash vs accrual bases?
recognizes a transaction at time of cash inflow or outflow; more common where recognize revenues when earned and expenses when incurred (basis of matching)
how to calculate depreciation using straight line method?
(cost of asset-salvage value)/years of useful life
an item is considered as ___ if its inclusion or omission would change or influence the judgement of a reasonable person
material
what are the primary financial statements used by foodservice managers?
balance sheet, income statement, cash flow statement, operating budgets
what is the balance sheet?
statement of assets, liabilities or debts, owner’s equity at a given time or at the end of an accounting period (static)
what is the income statement?
financial report that presents the net income or profit of an org for the accounting period (dynamic)
standard methods of accounting and presentation of financial statements are termed:
uniform systems of accounts
what are three categories of assets?
current (cash), fixed (experience accumulated depreciation), other
two types of liabilties?
current and long term
what is included in current liabilities?
accounts payable for merchandise, accrued expenses (salaries, wages, interest), annual mortgage payment
three types of ownership in profit-oriented enterprises
proprietorship, partnership, corporation
sales or revenues include:
cash receipts or the funds allocated to the op for the period
cost of sales calculated in this way:
inventory at beginning of period + purchases during period = total value of available food - inventory at end or period = cost of goods sold during period
gross profit or income is determined by:
subtracting cost of goods sold from sales or revenue.
net profit or loss is determined by:
subtracting expenses from gross profit
in a nonprofit, net profit is referred to as:
excess revenues over expenditures
tools to analyze financial data:
ratio analysis, trend analysis, common size statements, break even analysis
what is ratio analysis?
analysis of financial data in terms of relationships
ratio can be expressed in these ways:
common ratio, percentage, turnover, on a per unit basis
major categories of ratios?
liquidity, solvency, activity, profitability, operating
what are the two most common liquidity ratios?
current ratio and acid test ratio
how to calculate current ratio?
current assets/current liabilities
how to calculate acid-test/quick ratio?
(cash+accounts receivable+marketable securities)/current liabilities
what are solvency ratios?
used to examine ability to meet longterm financial obligations and financial leverage; total assets/total liabilities
what are activity ratios for?
examine how effectively org is using assets
what are examples of activity ratios?
inventory turnover (cost of goods sold/average inventory value) and percentage of occupancy (#beds or ooms occupied/#beds or rooms available)
what are three major profitability ratios?
profit margin (net profit/sales), return on equity (net profit/equity), return on assets (net profit/total assets)
what are operating ratios for?
analysis of success of the op in generating revenues and controlling expenses
examples of operating ratios p.t. revenue?
average customer check (total sales/# of customer checks), analysis of revenue mix (percentages)
examples of operating ratios p.t. costs?
food cost % (cost of food/sales) and labour cost % (cost of labour/sales), food cost per customer (total food cost/# of customers)
specific meal ratios?
meals per labour hour, meals per FTE, labour minutes per meal
what are common size statements?
financial statements where data are expressed as percentages for comparing results from one accounting period to another
break even analysis needs classification of costs into ___and __ components
fixed (property); variable (food costs, materials)
what are examples of semivariable costs?
labour, maintenance, utilities
how to calc breakeven point?
fixed costs/1-(Variable costs/sales)
denominator of the break even point is called:
contribution margin (proportion of sales contribute to fixed costs and profit after variable costs have been covered)
what is the cost-volume-profit formula?
sales or revenue level = (fixed costs + profit desired) / 1-(variable costs/sales)
what is gov. op budget?
schedule of authorizations for a given period or purpose and proposed means of financing it, funds that are independent fiscal entities are established
three primary objectives of budgeting:
planning, coordination, control
different types of foodservice budgets:
operating (revenue, expenditure, labour), capital (building, equipment, land), cash (cash receipts, disbursements)
statement that projects expected incomes and expenditures
pro forma statement (in profit orgs)
ways of budgeting:
fixed, flexible, incremental
length of time for the amount invested in asset to be recovered by sales or savings generated from asset
payback period (initial investments/expected yearly income)
what is referred to by the “time value of money”?
money has differing value over time ($1 today is worth more than $1 in future if invested)
____ value considers time value of money when evaluating proposed capital expenditure
net present
what are factors considered in NPV?
initial investment, expected income or cost savings each year for the expected useful life of project/equipment invested in, cost of capital used by org for evaluating capital expenditures (return on investment), table of discounted cash flow factors
three most often used pricing methods in food service:
factor (markup), prime cost (raw food+labour), actual cost (actual food cost+labour cost+other variable costs+fixed cost+profit)
pricing psych schemes?
odd cents, cost by the ounce, two tier foodservice, a la carte (separate prices for each individual item), table d’hote (priced in groups)
Pavesic and Magnant suggest that effective cost controlling involves:
providing info for daily decisions, monitor individual and dpt efficiency, inform management of income/expense/variations from budget, prevent fraud and theft, basis of knowing where company is going and not where it has been, emphasize prevention and not correction, maximize profit and not minimizing loss
how to control labour costs?
job analysis, work simplification, work production standards, workload forecasting, scheduling, control reports
the typical foodservice employee is:
female, under 30, single, live in household of 2+ wage earners, part time employee
techniques to help control labour costs?
cross-trainig, conduct periodic audits, monitor times of clocking in and out, develop schedules that adjust to changes in numbers of guests being served, use tech to assist, evaluate menu and consider reducing #/complexity of items or purchasing preprepared stuff
what are the two most expensive categories of cost in food service?
labour, food
strategies for controlling cost of food:
monitoring costs on routine basis, conduct monthly physical inventory, assure that standardized recipes are followed and proper portioning used, tracking all food waste, reviewing food purchasing and receiving practices, pricing menu items appropriately
suggestions for proper cash handling:
separation of duties, asset accountability, security of assets, reconciliation (documentation and surveillance)
cost vs revenue vs profit centre
break even vs. non-profits vs. for profit org
what is volume-of-service data?
count # of trays prepared for each meal and keep record of total # counted for each day
methods of establishing line item amounts?
fixed, flexible, zero-based
actual labour costs an average of __% above actual wage
26
FTE= ___ hours/day, ___hours/week, ____hours/year
7.5; 37.5; 1950
what are labour hours data?
data about regular productive hours, overtime, nonproductive hours