HB 302 1st Edition Exam 1 Study Guide Chapter 1 Introduction to Managerial Accounting What is the Uniform System of Accounts The Uniform System of Accounts is a set of standardized financial statements It is a turn key financial system that hospitality organizations often use What are the 10 principles of GAAP Generally Accepted Accounting Principles 1 Cost Principle 2 Business Entity 3 Continuity of the Business Unit Going Concern 4 Unit of Measurement 5 Objective Evidence 6 Full disclosure 7 Consistency 8 Matching 9 Conservatism 10 Materiality What does the cost principle state That when a transaction is recorded it is the transaction price or cost that establishes the accounting value for the product or service purchased What does the business entity principle of GAAP state That each business is 1 a business entity that records its own set of accounts and 2 These accounts are separate from the financial interests of the owners What does the Continuity of the Business Unit Going Concern Principle state Assumes that the business will be up and running into the foreseeable future Unit of Measurement means what Financial statements are to be expressed in monetary terms What does the Objective Evidence principle of GAAP state Accounting transactions and records should be based upon objective evidence What must be provided in the Full Disclosure principle of GAAP The information in the body of the financial statements as well as the footnotes must be provided What does the Consistency principle require Requires that an entity must follow an accounting method period to period once it has been adopted What does the Matching principle relate to Relates expenses to revenue What does the Conservatism principle call for Recognizing expenses as soon as possible but delaying recognition of revenue until it is ensured What is the Materiality principle The materiality principle calls that events or information must be accounted for if they make a difference to the user of the financial information What is the difference between cash based vs accrual based accounting Cash based accounting recognizes an accounting transaction at the point of cash inflow of outflow whereas accrual based accounting recognizes revenues when earned regardless of when cash is received and expenses when incurred regardless o when cash is dispersed What are assets Assets are things owned by the hospitality organization includes cash inventory accounts receivable land buildings and equipment What are liabilities Liabilities are obligations to outside parties and include accounts payable notes payable income tax payable long term debt payable and accrued payroll What is owners equity Owners equity is the residual claims owners have on assets Assets less liabilities equals owners equity What is the left side of any account called Debit What is the right side of any account called Credit What is the difference between all the credits and debits on an account Balance What is the term coined for a business owned by a single person Sole Proprietorship A business owned by two or more people is called what A partnership What is the term for a form of partnership that offers the protection of limited liability to its limited partners A limited partnership What is the term for a business organization incorporated under the laws of one of the United States A corporation What are dividends Dividends are payments to stockholders from a corporation s profits Once a corporation declared dividends to be paid it is recorded as a liability What is the definition of an LLC A limited liability company LLC combines the corporate feature of a limited liability with the favorable tax treatment of partnerships and sole proprietorship An LLC may also have an unlimited amount of owners Chapter 2 Balance Sheet How do creditors and investors use the balance sheet Creditors are interested in the hospitality operation s ability to pay its current and future obligations Investors are interested in earnings that lead to dividends What are some limitations of the balance sheet 1 Often do not reflect current values of some assets such as property and equipment 2 Fail to reflect elements of value to HB organizations 3 Limited by their static nature they reflect financial position for only a moment What are the differences and similarities between the account and report formats of the balance sheet Account format lists the asset accounts on the left side of the page and the liabilities and owners equity on the right The report format shows the assets first followed by liabilities and owners equity What are current assets Items to be converted to cash or used in one operating cycle within one year or in a normal operating cycle What are accrued expenses Expenses incurred before the balance sheet date and are not due until after the balance sheet date What are deferred income taxes and where are they recorded on the balance sheet Results from the use of different depreciation methods for tax and financial purposes They are generally recorded as a noncurrent liability and shown at cost What are the four different ways to analyze a balance sheet 1 Horizontal Analysis 2 Vertical Analysis 3 Base year comparisons 4 Ratio Analysis Chapter 3 Income Statement Who uses financial statements Both internal management and External Creditors Gov t Stockholders Labor Unions ext Parties What are the four basic financial statements Balance Sheet Income Statement Cash Flow Statement Statement of Retained Earnings What are the major differences between the income statement and balance sheet An income statement reflects a period of time whereas balance sheet reflects only one time period Why are creditors interested in the income statement Creditors are interested in the short term liquidity position of an organization which can be examined through the income statement How is the cost of food sold determined Food Cost Beginning Inventory Purchases Ending Inventory Food Sales What are the advantages of a uniform system of accounts Helps decision making process of a manager Aims to describe the model as well as render the decision making procedure What detailed expenses are included in the property operation maintenance and energy costs of the income statement Accounting License repairs maintenance legal fees and leisure are all included Everything else is a fixed cost Why are supplemental statements valuable to management They are used for means of financial reporting for