ACC00208 Financial Analysis for Hotels, Conventions, and Events

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ACC00208Financial Analysis for Hotels,
Conventions, and Events

• Topic 1
• Financial Information and its Users

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Chapter1
AccountingInformation for Decision Making
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Learning Objective
To discuss accounting as the language of business
and the role of accounting information in making
economic decisions.
LO1
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The accounting process
Accounting links decision makers with economic
activities ¾ and with the results of their
decisions.
Accounting information
Economic activities
Actions (decisions)
Decision makers
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Accounting in Organizations
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Types of Accounting Information
Financial
Tax
Managerial
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Learning Objective
To discuss the significance of accounting systems
in generating reliable accounting information,
and understand the five components of internal
control per COSOs Internal ControlIntegrated
Framework.
LO2
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Accounting Systems
An accounting system consists of the personnel,
procedures, technology, and records used by an
organization to develop accounting information
and to communicate this information to decision
makers.
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Stakeholders

• Stakeholders of an organisation are all the
  people (and other organisations) that have
  an interest in it, and that can influence the
  organisation or be influenced by its activities.
  (Blackwells Encyclopedic Dictionary)
• Stakeholders can be
• Internal employees, managers
• External investors, creditors, suppliers,
  government
• Stakeholders often have conflicting goals

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Stakeholders for a Hotel
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Information System

• Information Users
• Investors
• Creditors
• Managers
• Owners
• Customers
• Employees
• Regulators -SEC
• -IRS
• -FTC

• Decisions Supported
• Performance evaluations
• Stock investments
• Tax strategies
• Labor relations
• Resource allocations
• Lending decisions
• Borrowing

• Financial Information Provided
• Profitability
• Financial position
• Cash flows

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Basic Functions of an Accounting System

• Interpret and record business transactions.

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Learning Objective
To explain the importance of financial accounting
information for external partiesprimarily
investors and creditorsin terms of the
objectives and the characteristics of that
information.
LO3
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External Users of Accounting Information

• Owners
• Creditors
• Potential investors
• Labor unions
• Governmental agencies
• Suppliers
• Customers
• Trade associations
• General public

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Objectives of External Financial Reporting
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Objectives of External Financial Reporting

• The primary financial statements.

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Characteristics of Externally Reported Information
A Means to an End
Broader than Financial Statements
Usefulness Enhanced via Explanation
Based on General-Purpose Assumption
Historical in Nature
Results from Inexact and Approximate Measures
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Learning Objective
To explain the importance of financial accounting
information for internal partiesprimarily
managementin terms of the objectives and the
characteristics of that information.
LO4
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Users of Internal Accounting Information

• Board of directors
• Chief executive officer (CEO)
• Chief financial officer (CFO)
• Vice presidents
• Business unit managers
• Plant managers
• Store managers
• Line supervisors

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(No Transcript)
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Objectives of Management Accounting Information
To help achieve goals and missions
To help evaluate and reward decision makers
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Characteristics of Management Accounting
Information
Timeliness
Identify Decision Maker
A Means to an End
Oriented Toward Future
Measures of Efficiency and Effectiveness
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Learning Objective
To discuss elements of the system of external and
internal financial reporting that create
integrity in the reported information.
LO5
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Integrity of Accounting Information

• Institutional Features
• Generally Accepted Accounting Principles (GAAP)
• Financial Accounting Standards Board
• International Accounting Standards Board
• Securities and Exchange Commission
• Public Company Accounting Oversight Board
• Audits of Financial Statements
• Legislation

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End of Chapter 1
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The Value Chain

• A sequence of activities that creates a product
  or service. It is the chain of activities that a
  firm performs to produce goods or services from
  raw inputs to their ultimate sale to consumers.

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Value Chain

• Activities consume resources such as raw
  materials, purchased goods and services,
  equipment and employees time and skills.
• The consumption of these resources creates
  costs.
• Activities also generate sales
• Difference between sales and costs create value
• Each activity also creates information that
  can be useful in making judgments about
  the business.

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AppendixC
FORMS OF BUSINESSORGANIZATION
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Learning Objective
To describe the basic characteristics of a sole
proprietorship.
LO1
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Importance of Business Form
Proprietorship
Partnership
Corporation
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Sole Proprietorships
A sole proprietorship is an unincorporated
business owned by one person. Proprietorships are
the most common form of business organization
because they are so easy to start.
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Characteristics of a Sole Proprietorship
The owner is personallyliable for the debts
ofthe business.
Ease of formation.
Business pays noincome taxes.
Business pays nosalary to the owner.
Business assets actuallybelong to the proprietor.
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Accounting Practices of Sole Proprietorships
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Learning Objective
To identify factors to consider in evaluating the
profitability and liquidity of a sole
proprietorship.
LO2
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Adequacy of Net Income

• The net income of a sole proprietorship
  should be sufficient to compensate the owner for
• Personal services rendered to the business
• Capital invested
• The degree of financial risk that the owner is
  taking

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Evaluating Liquidity
In evaluating liquidity of a sole
proprietorship, creditors must look beyond the
balance sheet to the ability of the owner to pay
any debt.
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Learning Objective
To describe the basic characteristics of a
general partnership and of partnerships that
limit personal liability.
LO3
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Partnerships
A partnership is an unincorporated business owned
by two of more partners. A partner may be either
an individual or a corporation.
Partnerships are the least common form of
business organization, but are widely used for
professional practices.
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General Partnerships
Each partner has rights and responsibilities
similar to those of a sole proprietor. Unless
restricted by agreement, each partner may
withdraw assets from the business at will.
Mutual Agency
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Partnerships That Limit Personal Liability
Limited PartnershipsThe partnership has a
general partner who has the right to make
managerial decisions and has unlimited liability
for the obligations of the partnership. In
addition, the partnership has limited partners
who are basically passive investors.
Limited Liability PartnershipsEach partner has
unlimited personal liability for his or her own
professional services, but not for the actions of
other partners.
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Accounting Practices of Partnerships
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Evaluating the Financial Statements of a
Partnership

• Like a sole proprietorship, partnership net
  income should be sufficient to compensate the
  partners for
• The value of personal services rendered
• Capital invested
• The degree of financial risk that the partner is
  taking

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Evaluating the Financial Statements of a
Partnership
The risk assumed by creditors depends upon the
type of partnership.
All partners have unlimited personal liability.
In a general partnership, the general partner(s)
has personal liability.
In a limited liability partnership, liability
extends to partner(s) directly involved.
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Learning Objective
To describe the basic characteristics of a
corporation.
LO4
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Corporations
A corporation is a legal entity, having an
existence separate and distinct from that of its
owners.
Owners
Evidence of Ownership
Stockholders
Capital Stock
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Corporations
Corporations may be publicly owned or closely
held.
Publicly OwnedShares traded on the NYSE or
NASDAQ.
Closely HeldShares of stock not publicly traded.
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Characteristics of Forms of Business Organizations
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Learning Objective
To explain why there isdemand for
harmonizationof global financialreporting
standards.
LO3
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Harmonization of Financial Reporting Standards
The International Accounting Standards Board
(IASB) has as one of its stated goals the
harmonization of accounting standards.
Harmonization is used to describe the
standardization of accounting methods and
principles used in different countries throughout
the world.
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Harmonization of Financial Reporting Standards