1. Chapter 3 The Income Statement
HFT 3431
Chapter 3
The Income Statement

2. Income Statement Statement of Earnings Profit and Loss Statement
Statement of Operations
Frequency - Daily, Weekly, Monthly, Quarterly, Annually

3. Income Statement Reports on a Period of Time
Departmental Income Statements
Uniform System of Accounts

4. Questions Answered How Profitable Was Business?
What Were the Total Sales?
How Much Was the Labor Cost?
What Was Food Cost Percent?

5. Questions Answered Are Sales In(de)creasing?
Are Expenses In(de)creasing?
What Were Marketing Costs?
What Percent of Sales Is Profit?

6. Elements of Income Statement
Revenue - Sale of Goods and Services; Investment Income; Rental Income
Expenses - Outflows to Produce Goods; Cost of Goods Sold; Labor; Controllable Expenses; Noncontrollable Expenses

7. Elements of Income Statement
Other Gains and Losses - From Incidental Transactions; Acts of Nature
Period Income or Loss - Add/Deduct To/From Equity

8. Elements of Income Statement
Internal Users - Management
External Users - Summary Statement

9. Uniform System of Accounts
Standardized Accounting System
Industry Driven
Basic Formats
Departmental Statement and Schedules

10. Uniform System of Accounts
Explanations and Discussions
Allows Comparison - Other Operations and Self
Can Be Used by Any Size Operation

11. Uniform System of Accounts
Property Level Designed Use
Direct Operating Expense Based on Cost of Goods Sold, Direct Labor Expense, Direct Expenses

12. Contents of the Income Statement
Operated Departments
Net Revenues by Department
Cost of Sales
Payroll and Related
See page 95 for sample

13. Contents of the Income Statement
Other Direct Expenses
Departmental Income –
Net Department Revenues
Less Departmental Expenses

14. Contents of the Income Statement
Non Operated Departments
Undistributed Operating Expenses
Payroll and Related and Other Are Shown Separately

15. Contents of the Income Statement
Administrative and General
Data Processing
Human Resources
Transportation

16. Contents of the Income Statement
Marketing
Property Operations and Maintenance
Energy Costs
Income After Undistributed Operating Expenses

17. Contents of the Income Statement
Other Expenses (Board Decisions)
Management Fees
Fixed Charges (Capacity Costs)
Other Gains or Losses
Sale of Property/Equipment

18. Income Statement Analysis
Comparative Statements
Horizontal Analysis
Calculate Absolute Change (Dollar Difference)
Calculate Relative Change (Percentage Difference)
Investigate Significant Differences
Internal Analysis

19. Horizontal Analysis Example

20. Income Statement Analysis
Common Size Statements
Vertical Analysis
Total Revenue Equal 100%
Each Expense Shown As Percentage of Total
Compare to Industry, Like Businesses or Self

21. Vertical Analysis Example

22. Data Availability
PKF Consulting - Trends in the Hotel Industry (U.S. and Worldwide)
PKF Consulting - Clubs in Town and Country

23. Data Availability
Arthur Andersen & Smith Travel Research - The Host Report - Hotel Operating Statistics
NRA - Restaurant Industry Operations Report
Local Hotel Organizations

24. Cost of Goods Sold Calc Beginning Inventory + Purchases
= Goods Avail For Sale
- Ending Inventory
= Cost of Goods Consumed
- Transfer Out
- Employee meals
+ Transfer In
= Cost of Goods Sold

25. Adjustments Intraunit transfers Interunit transfers Grease sales
Steward sales
Gratis to bars

26. Adjustments Promotion expenses Employee meals To General Manager
“Comps”

27. Cost of Goods Sold Example
Assume:
Beginning Inv $10,000
Purchases $50,000
Ending Inv $25,000
Room Div Emp Meal $15,000
Transfer From Bar $1,000
Transfer to Banquets $1,500

28. Cost of Goods Sold Example
$10,000 Beginning Inv
$50,000 Purchases
$60,000 Goods Avail Sale
($25,000) Ending Inv
$35,000 Cost of Goods Consumed
($15,000) Room Div Emp Meal
$1,000 Transfer From Bar
($1,500) Transfer to Banquets
$19,500 Cost of Goods Sold

29. Cost of Food or Beverages Sold
Food or beverage cost percent equals cost of goods sold divided by food or beverage sales
What is reported to management?

30. Gain or Loss Calc Original Cost - Accumulated Depreciation
= Book Value
Sales Price
- Book Value
= Gain if positive
= Loss if negative

31. Gain or Loss Example Assume Purchased Truck for $10,000
Accumulated Depr is $6,000
Sold Truck For $5,000

32. Gain or Loss Example $10,000 Purchase Price (6,000) Accum Depr
4,000 Book Value
$5,000 Sales Price
(4,000) Book Value
1,000 Gain (Since positive)

33. Key Items To Remember Revenues are listed Net of Allowances
Cost of employee meals are part of that dept’s expenses not cost of food sold
Taxes and Benefits considered as part of payroll expense
See page 90 for the 14 Rooms Division Major Other Expenses

34. Summary & Departmental Schedules
See pages regarding
Summary
Rooms
Food & Beverage
Telecommunications
Rentals & Other Income
Administrative & General
Maintenance
Sales & Marketing
Utilities
Other Departmental Statements