HFT 2403 Chapter 6 The Balance Sheet

Questions Answered by Balance 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?

Questions Answered by Balance 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 Invested in the Assets? How Much have Stockholders Invested in the Assets?

Purposes of the Balance Sheet The Income Statement: Pertains to a period of time The Income Statement: Pertains to a period of time The Balance Sheet – Pertains to a given date The Balance Sheet – Pertains to a given date Primarily use by creditors and investors Primarily use by creditors and investors Used quite a bit for various ratio analysis to monitor the overall “health” of the business Used quite a bit for various ratio analysis to monitor the overall “health” of the business

Liquidity The ability of the operation to convert assets to cash to meet current liabilities The ability of the operation to convert assets to cash to meet current liabilities Current Ratio- Used by creditor and investors Current Ratio- Used by creditor and investors Current Assets / Current Liabilities Current Assets / Current Liabilities s/b around 2 : 1 s/b around 2 : 1

Balance Sheet Limitations Does Not Reflect Current Values of Assets (Booked According to Cost Principle) Does Not Reflect Current Values of Assets (Booked According to Cost Principle) Does Not Include Some Things of Value Such as Personnel, Location, Customer Base, Goodwill Does Not Include Some Things of Value Such as Personnel, Location, Customer Base, Goodwill Numbers are of a Static Nature Numbers are of a Static Nature

Balance Sheet Limitations Becomes Quickly Outdated Becomes Quickly Outdated Some Account Balances are Estimates Such as Depreciation and Estimates for Uncollectibles – Based on Best Judgment Some Account Balances are Estimates Such as Depreciation and Estimates for Uncollectibles – Based on Best Judgment

Balance Sheet - The Statement of Financial Position Assets = Liabilities + Equity Assets = Liabilities + Equity Statement of Assets, Liabilities, and Owners’ Equity at a Point in Time Statement of Assets, Liabilities, and Owners’ Equity at a Point in Time

Balance Sheet - The Statement of Financial Position Assets Assets Current Assets Noncurrent Receivables Investments Property and Equipment Other Assets

Balance Sheet - The Statement of Financial Position Liabilities Liabilities Current Liabilities Long Term Debt Deferred Income Taxes Commitments / Contingencies Other Long-Term Liabilities

Balance Sheet - The Statement of Financial Position Owners’ Equity Owners’ Equity Capital Stock Additional Paid In Capital Retained Earnings Treasury Stock

Balance Sheet Formats and Structure Account Format - Assets on Left and Liabilities and Equity on Right (p. 205) Account Format - Assets on Left and Liabilities and Equity on Right (p. 205) Report Format - Assets First Followed by Liabilities and Equity (p. 206) Report Format - Assets First Followed by Liabilities and Equity (p. 206)

Balance Sheet Formats and Structure Current Assets - Converted to Cash or Used in Operation in One Year or Normal Operating Cycle Current Assets - Converted to Cash or Used in Operation in One Year or Normal Operating Cycle Listed in Order of Liquidity Listed in Order of Liquidity

Balance Sheet Formats and Structure Cash (All Forms) Cash (All Forms) Marketable Securities Marketable Securities Receivables Receivables Inventories Inventories Prepaid Expenses Prepaid Expenses

Noncurrent Assets Noncurrent Receivables - not expected to be collected within one year - owners are shown separate Noncurrent Receivables - not expected to be collected within one year - owners are shown separate Investments - securities, land not in use, and affiliate advances not to be collected within one year Investments - securities, land not in use, and affiliate advances not to be collected within one year

Noncurrent Assets Property and Equipment - Fixed Assets, Capital Leases - Less accumulated depreciation Property and Equipment - Fixed Assets, Capital Leases - Less accumulated depreciation Smallwares - New USOA Recommends to Expense or Write off Over 3 Years Smallwares - New USOA Recommends to Expense or Write off Over 3 Years

Noncurrent Assets Other Assets - Deferred Charges, Security Deposits Other Assets - Deferred Charges, Security Deposits Preopening Expenses - New USOA Recommends to Expense in Current Period Preopening Expenses - New USOA Recommends to Expense in Current Period

Other Assets Goodwill Goodwill Cash Surrender Value of Life Insurance Cash Surrender Value of Life Insurance Deferred Charges Deferred Charges Possibly Deferred Income Taxes Possibly Deferred Income Taxes

Balance Sheet Formats and Structure Current Liabilities - Obligations expected to be Satisfied in One Year or Normal Operating Cycle Current Liabilities - Obligations expected to be Satisfied in One Year or Normal Operating Cycle

Current Liability Presentation Payables Payables Advance Deposits Advance Deposits Current Maturities of Long Term Debts Current Maturities of Long Term Debts Dividends Payable Dividends Payable Income Taxes Payable Income Taxes Payable

Long Term Liabilities Obligations Beyond One Year Obligations Beyond One Year Notes Payable Notes Payable Mortgages Payable Mortgages Payable Bonds Payable Bonds Payable Capitalized Lease Obligations Capitalized Lease Obligations Possibly Deferred Income Taxes Possibly Deferred Income Taxes

Owners’ Equity Preferred Stock, $$$ Preferred Stock, $$$ Shares Authorized Shares Authorized Shares Issued Shares Issued Common Stock, $$$ Common Stock, $$$ Shares Authorized Shares Authorized Shares Issued Shares Issued

Owners’ Equity Treasury Stock Treasury Stock Additional Paid in Capital Additional Paid in Capital Retained Earnings Retained Earnings

Owners’ Equity Sole Proprietorship Capital Sole Proprietorship Capital Partnership - Show Each Owner’s Capital Partnership - Show Each Owner’s Capital Withdrawal Accounts Withdrawal Accounts

Footnotes Significant Accounting Policies Significant Accounting Policies Accounts and Notes Receivable Accounts and Notes Receivable Inventories Inventories Investments Investments

Footnotes Property and Equipment Property and Equipment Current Liabilities Current Liabilities Long Term Debt Long Term Debt Capital Stock Capital Stock Employee Benefit Plans Employee Benefit Plans

Footnotes Leases Leases Segments of Business Segments of Business Supplemental Financial Information Supplemental Financial Information Commitment/Contingent Liability Commitment/Contingent Liability Income Taxes Income Taxes

Balance Sheet Analysis Common Size Statements or Vertical Analysis Common Size Statements or Vertical Analysis Total Assets Equal 100% Total Assets Equal 100% Total Liabilities and Equity Equals 100% Total Liabilities and Equity Equals 100% Each Individual Account is Shown as a Percentage of the Total Assets Each Individual Account is Shown as a Percentage of the Total Assets Compare to Industry, Like Businesses or Self Compare to Industry, Like Businesses or Self

Balance Sheet Analysis Assets Cash 10,00010% A/R20,00020% Building 70,00070% Total Assets 100, % Total Assets 100, % Liabilities & Equity Liabilities Accounts Payable 10,00010% Mortgage Payable 80,00080% Owners Equity 10,00010% Total Liab. & Equity100,000100% Total Liab. & Equity100,000100%

Homework Chapter 6 Problem 3 Problem 3 Problem 4 Problem 4 Problem 7 Problem 7