Presentation on theme: "Agenda Quiz – Chapters 1 through 3 Chapter 4 – The Income Statement"— Presentation transcript:
1 Agenda Quiz – Chapters 1 through 3 Chapter 4 – The Income Statement Homework – P & L Report
2 Foodservice Financial Basics Week 3 Chapter 4 – The Income Statement
3 Objectives Upon completion of this unit, each student will be able to: Understand the role and functions of the Income Statement.Understand the profit or loss from the Income Statement.Prepare a Profit & Loss report based on sales and cost information.
4 The Income StatementMore commonly know as the “P&L” (Profit and Loss Statement) and also know as an Operating StatementDetails the Revenue – Expenses = Profit (or loss) for a specific time period…. Usually each monthCompares these categories against budgetThe P&L gives you a clear picture of how well the restaurant is operating (or how poorly it is operating)
5 The P&L Answers these questions: What is the amount of revenue achieved for the period?What is the level of expense being incurred for the period?What was the food cost and beverage cost, as a dollar figure and as a percentage of sales?Were payroll costs kept in line with the budget?How much $$$ was spent on advertising, rent and other overhead activities?What was the tax expense for the period?What is the amount of profit being achieved for the period?
6 Who is interested in this report? ManagersOwnersInvestorsOthers, including creditors, lenders and employees
7 Steps to prepare P&L Report Determine time period for the reportCalculate total salesCalculate total costsSubtract total costs from total salesREVENUE – EXPENSES = PROFIT
8 Responsibility and Users Who would be responsible for preparing this report?Who are primary users of this report?Responsibility accounting: Revenues and expenses reported separately for separate areas of responsibilityUses:To report sales and expense historyTo report sales and expense forecastsTo report sales and expense actual resultsTo report sales and expense for a future period
9 RevenueInflows of assets that result from the sale of products and servicesInterchangeable terms: income, revenue, salesAssets can be in the form of cash, check, credit card or promise to pay (receivables)Recognized:at the point of salewhen the earnings process is completedwhen an exchange has taken placeSeparate by category to identify contribution
10 Revenue Sources Distinct dining areas Banquets Catering Drive – throughCarryoutDeliveryLounge or barBakeryGift ShopGift certificates and gift cardsMerchandise such as t-shirts, caps, etc
11 PercentagesSales contributed by ÷ Total = Sales Revenue source Sales Percentage
13 ExpensesExpenses – Costs incurred by the restaurant to provide food and beverage products and services to the guests.Direct Expenses- Expenses that are closely related to the products and services provided to the guests.Indirect Expenses- Costs include depreciation, interest expense, property taxes, and rent expense.
14 Expenses Also referred to as Cost of Sales in our industry Most managers are interested in knowing their food cost percentage, their beverage cost percentage and their overall cost of sales percentage…….WHYHow do you do this???
17 Net IncomeNet income as reflected in the restaurants P&L, occurs when revenues exceed expenses.Gains- are increases in equity that do not result from revenues or investments by owners.i.e. Selling a piece of equipment or another investment at a profit.Losses- are decreases in equity that do not result from expenses or distribution to owners.i.e. selling a piece of equipment at a loss, or experiencing a natural disaster such as a flood or tornado.
18 Uniform System of Accounts An accounting system including financial statement formats and dictionaries of financial terms developed specifically for the restaurant industry, which can be used to drive the accounting system for a specific restaurant.National Restaurant Association & Deloitte & Touche, LLC produce annual report on statistics
19 Sample Income Statement Sample Income Statement(1) Sample Income Statement Sample Income Statement(1).xls Explanation of Terms Explanation of Terms.pdf
20 Format for Income Statement SalesCost of Sales (COGS – Cost of Goods Sold)Gross ProfitOperating Expenses (Controllable Expenses)Occupancy Costs (Noncontrollable Expenses)Operating IncomeInterest and TaxesNet Income
21 Sales/Income Possible categories of Income Food Beverage Catering VendingNon-Food
22 Expenses Controllable vs. Noncontrollable Variable/Fixed/Semi-variable or MixedBroken down into 5 main categories (some with several sub-categories)Food & Beverage Cost (COGS)Labor Costs (Salaries and wages)Payroll taxes, insurance, employee benefitsOther Operating ExpensesOccupancy ExpensesInterest & Taxes
23 Other Operating Expenses Direct Operating ExpensesAdvertising / MarketingMusic & EntertainmentUtilitiesGeneral and Administrative ExpensesRepairs & MaintenanceSuppliesCorporate OverheadFees
24 Occupancy ExpensesExpenses associated with the physical space you occupyRent or LeaseDepreciationInsuranceTaxes
25 What do leasing companies consider? Good CreditLiquid AssetsBusiness PlanResume’Realistic Financial ProjectionsGood LocationRestaurant Startup & Growth magazine/Restaurant Owner.com
26 Taxes Taxes Payable by the Business Income Taxes : Federal, State, LocalProperty Taxes: State or Local and assessed based on property valuePersonal Property Taxes: Equipment, vehicles, construction in processTaxes Collected by Business for GovernmentSales Tax: Collected by business for the State, Local government and submitted by businessPayroll Taxes: Withheld by employer from employee’s paychecks and paid to Federal and State. Can also include unemployment insurance, worker’s compensation and unemployment compensation.
28 Classify as Income or Expense UtilitiesRevenue from T-Shirt SalesOutside signsWine SalesWagesMarketingFood SalesRepairs
29 Cost Behavior Cost Category Description Classification Is it a % or $ Cost of GoodsControllable ExpensesOccupation Costs
30 Cost Behavior Cost Category Description Classification Is it a % or $ Cost of GoodsOperating CostControllable ExpensesOccupation CostsNon-operating Cost
31 Cost Behavior Cost Category Description Classification Is it a % or $ Cost of GoodsOperating Cost & Controllable→Controllable ExpensesOperating Cost & Controllable →Occupation CostsNon-operating Cost& Non-controllable→
32 Cost Behavior Cost Category Description Classification Is it a % or $ Cost of GoodsOperating Cost & Controllable→Variable CostControllable ExpensesOperating Cost & Controllable →Fixed CostOccupation CostsNon-operating Cost& Non-controllable→
33 Cost Behavior Cost Category Description Classification Is it a % or $ Cost of GoodsOperating Cost & Controllable→Variable Cost%Controllable ExpensesOperating Cost & Controllable →Fixed Cost$Occupation CostsNon-operating Cost& Non-controllable→
34 Cost Behavior when sales change Cost CategoryClassificationIs it % or $What Happens to $$What Happens to %Cost of GoodsVariable%Controllable Expenses (Controllable)Fixed$Occupation Costs (Non-controllable)
35 Cost Behavior when sales change Cost CategoryClassificationIs it % or $What Happens to $$What Happens to %Cost of GoodsVariable%$$ ChangeControllable Expenses (Controllable)Fixed$$$ SameOccupation Costs (Non-controllable)
36 Cost Behavior when sales change Cost CategoryClassificationIs it % or $What Happens to $$What Happens to %Cost of GoodsVariable%$$ Change% to Sales = sameControllable Expenses (Controllable)Fixed$$$ Same% to Sales ≈ sameOccupation Costs (Non-controllable)% to Sales = change
37 Cost Behavior for Sales Forecasting Variable & Mixed (%)UpDownIncreaseDecreaseStays the sameFixed ($)SameDecreasesIncreases
38 Steps for management control Set StandardsMeasure PerformanceDetermine VariancesTake Corrective ActionReview Performance & Cycle
40 Review Questions 1. The profit and loss report is also called the A) balance sheetB) income statementC) bottom line statementD) statement of net worth2. Which is the correct formula for calculating profit or lossA) Monthly sales x 12B) Total costs – Total salesC) Total sales – Total costsD) Annual sales – Monthly costs
41 Questions, cont.3) What is the final step in preparing a profit and loss statementA) Calculate total salesB) Calculate total costsC) Subtract total cost from total salesD) Determine what time period the report should cover4) What information is included at the top of a profit and loss statement?A) SalesB) CostsC) TaxesD) Expenses
42 Questions, cont.5) An operation’s Budget lists food expenses as $14,000. The P&L report for the period indicates food expenses were $18,000. What has occurred?A) ToleranceB) VarianceC) Standard DeviationD) Corrective Action6) What technique can be useful to determine the contribution of revenue from different areas?A) Adding all categories togetherB) Separating sales by categoriesC) Counting food and beverage sales togetherD) Subtracting merchandise sales from food sales
43 Questions, cont. 7) One use of the data found in the P&L report is to A) complete the operation’s staffing processB) aid management in developing training programsC) provide information on the manager’s salaryD) analyze trends and identify areas for improvement8) What term describes the excess of costs over sales?A) ProfitB) Break-evenC) LossD) Standards
44 Questions, cont.9) The first step in preparing an income statement is toA) name the manager preparing the reportB) list the costs to be included it the reportC) identify sales to be included in the reportD) identify the time period covered by the report10) What is food cost if ending inventory is $4,000, beginning inventory is $2,500 and food purchases were $15,000?A) $16,500B) $17,500C) $13,500D) $19,00011) What is prime cost?
45 Questions, cont.12. An operation’s year-end income statement shows before tax profits of $210,000. Revenues for the year were $1,850,000. What were this operation’s expenses for the year?a) $1,430,000b) $1,640,000c) $2,060,000d) $2,300,00013. What is an example of a fixed cost?a) Utility servicesb) Salaries and wagesc) Licenses and permitsd) Repairs and maintenance
46 Assignment Read Chapter 5 in text book Complete Mikki’s Steak House P & L