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Accounting and financial analysis in the accounting Hospitality industry
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Mô tả chi tiết
Accounting and
Financial Analysis
in the Hospitality
Industry
Accounting and
Financial Analysis
in the Hospitality
Industry
JONATHAN A. HALES
AMSTERDAM • BOSTON • HEIDELBERG • LONDON
NEW YORK • OXFORD • PARIS • SAN DIEGO
SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO
Elsevier Butterworth–Heinemann
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Front Cover Photo Credits L–R
Four Seasons Resort, Scottsdale, AZ
Orlando World Center Marriott Resort and Conference Center, Orlando, FL
Otesaga Hotel, Cooperstown, NY
Back Cover Photo Credit
WeKoPa Golf Club in Fort McDowell, Fountain Hills, AZ
Recognizing the importance of preserving what has been written, Elsevier prints its books on acid-free paper
whenever possible.
Library of Congress Cataloging-in-Publication Data
Hales, Jon.
Accounting and financial analysis in the accounting industry / Jon Hales.
p. cm.
Includes index.
ISBN 0-7506-7896-8
1. Hospitality industry—Accounting. I. Title.
HF5686.H75H33 2005
657¢.837—dc22
2005009790
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
ISBN: 978-0-7506-7896-4
ISBN: 0-7506-7896-8
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v
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Chapter 1
Introduction to Numbers, Accounting, and Financial Analysis 1
Numbers: The Lifeblood of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Career Success Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Three Main Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Revenues: The Beginning of Financial Performance . . . . . . . . . . . . . . . . . . . . 15
Profit: The Ultimate Measure of Financial Performance . . . . . . . . . . . . . . . . . 20
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Chapter 2
Foundations of Financial Analysis . . . . . . . . . . . . . . . . . . . . . 27
Fundamental Methods of Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 28
Comparing Numbers to Give Them Meaning . . . . . . . . . . . . . . . . . . . . . . . . . 30
Measuring Change to Explain Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Using Percentages in Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Four Types of Percentages Used in Financial Analysis . . . . . . . . . . . . . . . . . . 35
Trends in Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Chapter 3
Accounting Department Organization and Operations . . . . . 47
Organization Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Accounting Operations in Full-Service Hotels . . . . . . . . . . . . . . . . . . . . . . . . 57
Accounting Operations in Restaurants and Smaller Hotels . . . . . . . . . . . . . . . 62
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Chapter 4
The Profit and Loss (P&L) Statement . . . . . . . . . . . . . . . . . . . 67
Hotel Consolidated P&L Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Formats for a Consolidated P&L . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Department P&L Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Chapter 5
The Balance Sheet (A&L) and Statement of Cash Flow . . . . . 89
The Balance Sheet or Asset and Liability (A&L) Statement . . . . . . . . . . . . . . . 90
Working Relationships between the Balance Sheet and the P&L Statement . . 99
The Statement of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Chapter 6
Hotel Management Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Internal Hotel Management Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Daily Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Weekly Internal Management Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Monthly Internal Management Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
TABLE OF CONTENTS
vi
TABLE OF CONTENTS
vii
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Chapter 7
Revenue Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
REVPAR: Revenue per Available Room . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Rate Structures and Market Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Revenue Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Selling Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Chapter 8
Comparison Reports and Financial Analysis . . . . . . . . . . . . . 153
Profitability: The Best Measure of Financial Performance . . . . . . . . . . . . . . . . 154
Review of Chapter 2: Foundations of Financial Analysis . . . . . . . . . . . . . . . . . 159
Variation Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
STAR Market Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Chapter 9
Forecasting: A Very Important Management Tool . . . . . . . . . 173
Forecasting Fundamentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Types and Uses of Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Revenue Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Wage Forecasting and Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Chapter 10
Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
The Use of Budgets in Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . 231
Annual Operating Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Formulas and Steps in Preparing a Budget . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Capital Expenditure Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Chapter 11
Corporate Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
The Purpose of Corporate Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 251
The Message to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
The Content of the Corporate Annual Report . . . . . . . . . . . . . . . . . . . . . . . . 257
Financial Results for the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
Chapter 12
Personal Financial Literacy . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Personal Financial Literacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Managing Personal Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Evaluating Assets and Sources of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Hospitality Manager Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Review Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
TABLE OF CONTENTS
viii
ix
Preface
Most hospitality programs in the United States require several accounting classes as part
of their curriculum. Although these accounting classes are important and provide the
knowledge and skills that every hospitality manager will need, students are generally
afraid of, do not like, have high anxiety levels about, and do not do well in these classes.
Often the result is that they just try to survive the class and do not try to understand and
learn the accounting and finance concepts presented in the class that will help them in
their hospitality careers.
This textbook seeks to reduce students’ fears and anxieties by focusing on the fundamentals of using numbers in operating a business. This means focusing on the essential
fundamentals that are easier to understand and apply. It means teaching students to use
numbers in hospitality operations. It does not include the accounting details and complexity that are used by Directors of Finance and CPAs. The focus is on using financial
reports in operating the departments, not on preparing accounting reports.
Fundamental accounting concepts and methods of financial analysis are important skills for
graduating students to understand and possess as they begin their hospitality careers.
They should have a solid foundation of accounting knowledge and fundamentals that will
enable them to quickly learn, understand, and apply the accounting policies and procedures of the hospitality company that they work for. This understanding often means the
difference between steady career advancement and no advancement at all.
Hospitality students need to have a fundamental understanding of using numbers in
operating their departments and analyzing their financial statements. This textbook is
written to present and focus on the following important goals in teaching hospitality
accounting:
1. Presenting students with accounting information that will provide a solid foundation of fundamental accounting concepts and methods of financial analysis.
2. Teaching students to understand numbers and be able to use numbers to help them
perform their managerial responsibilities more effectively.
PREFACE
x
3. Assisting students in understanding that using financial analysis to evaluate business operations involves basic arithmetic and fundamental formulas and need not
be complicated and overwhelming.
4. Teaching students to understand that numbers resulting from operations are used
as a management tool and a means to measure financial performance.
5. Enabling students to apply accounting concepts and methods of financial analysis
in managing their operations and evaluating financial statements.
This textbook was written to provide hospitality students and hospitality managers
with a solid foundation of accounting concepts and methods of financial analysis that they
will need to use in their jobs in the hospitality industry. The Directors of Finance for several
major hotel companies have reviewed a major portion of the material. Their input was
instrumental in enabling the material presented in this textbook to be consistent with the
actual accounting processes and procedures used in the hospitality industry.
This textbook is written for students who desire to become hospitality operations managers and not Assistant Controllers, Controllers, or Directors of Finance. It is critical that
hospitality managers be able to understand numbers and use them in the daily operations
of their departments. Accounting fundamentals and accounting applications to operations
are the main themes of this book.
Chapters 1 and 2 provide an introduction to accounting and a solid foundation of
accounting concepts and methods of financial analysis. The focus is on the fundamentals
of using numbers in hospitality operations. Chapter 3 explains the organization and operation of the accounting department in a hotel. This is intended to help hospitality students
understand how accounting department operations fit into hotel operations and how they
can help hospitality managers operate their departments.
Chapters 4 through 8 discuss the three main financial statements used in financial
analysis and hotel management reports that are used as management tools and to measure
financial performance. The purpose is to introduce students to the actual use and application of financial reports in the operations of departments within a hotel or restaurant.
The focus is to present accounting and financial information that students will need to
know and be able to use in managing their departments.
Chapters 9 and 10 emphasize the importance of forecasting and budgeting as a management tool and as a way to measure financial performance. Forecasting revenues and
scheduling wages are two important responsibilities of hospitality managers. These
chapters focus on the importance of a manger’s ability to review current operations and
to prepare weekly forecasts that update the budget and reflect current market conditions.
Chapters 11 and 12 are intended to provide students with additional knowledge to
broaden their financial skills and understanding. Chapter 12 is intended to encourage
students to apply fundamental financial skills to their personal management of money.
The glossary summarizes key terms presented in the text that students should know.
As students read this text and progress through a hospitality accounting course, it
is the author’s hope and intent that they will be able to learn fundamental accounting
concepts and use methods of financial analysis in operating their departments when they
start their hospitality careers. By focusing on accounting fundamentals and building
on accounting concepts, student fears and anxieties of accounting will be replaced with a
solid and useful understanding of accounting that they will be able to use and apply in
their hospitality careers.
Jonathan A. Hales
PREFACE
xi
Foreword
The Butterworth-Heinemann Hospitality Management Series covers all aspects of the
management of hospitality enterprises from an applied perspective. Each book in the series
provides an introduction to a separate managerial function such as human resources or
accounting, to a distinct management segment in the hospitality industry such as club
management, resort management, or casino management, as well as to other topic areas
closely related to hospitality management, such as information technology, ethics, or services management.
The books in the series are written for students in two- and four-year hospitality management programs, as well as entry- and mid-level managers in the hospitality industry.
They present readers with three essential features they are looking for in textbooks nowadays: these books are affordable, they are high quality, and their applied and to-the-point
approach to hospitality management issues appeals to students and instructors alike. The
authors in the series are selected because of their expertise and their ability to make
complex materials easy to understand.
Accounting and Financial Analysis in the Hospitality Industry by Dr. Jon Hales is the first
text in this series. Because of his industry experience (Dr. Hales served as a Controller,
Resident Manager, and General Manager at six properties for the Marriott Corporation for
25 years) and his educational experience as a college-level instructor, Dr. Hales knows
exactly what students and entry-level managers need to be aware of when it comes to
managerial accounting. He also has the educational expertise to convey this knowledge
in a very applied and easy-to-understand format, as he teaches this subject every day. This
is what you need to know about managerial accounting and what the numbers tell you
when you leave school and become a manager!
Students and educators alike will find affordability, relevance and high quality in this
and all other texts in the series. As we say in the hospitality industry: welcome and enjoy!
Hubert B. Van Hoof, Ph.D.
Series Editor
xiii
Introduction to Numbers, Accounting,
and Financial Analysis
Learning Objectives
1. To understand the three most common measurements of a company’s success.
2. To recognize how important understanding accounting and finance is to the career of
any hospitality manager.
3. To learn about and describe the three fundamental financial statements.
4. To become familiar with fundamental revenue accounting concepts.
5. To understand fundamental profit accounting concepts.
6. To learn the revenue and profit formulas.
Chapter Outline
Numbers: The Lifeblood of Business
Accounting Concept
Customers, Associates, and Profitability
Career Success Model
Technical Skills
Management/Leadership Skills
Financial Skills
Marketing Skills
High-Performance Organizations
The Three Main Financial Statements
Profit and Loss Statement
Balance Sheet
Statement of Cash Flows
1
1