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347 Cards in this Set
- Front
- Back
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Accounting
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The process of identifying, measuring, and communicating economic information to permit users to make informed judgments and decisions
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Accounting Systems
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The branch of accounting that covers the review of a firm's entire information system, not just the accounting system.
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Accrual Basis Accounting
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System of reporting revenues and expenses in the period in which they are considered to have been earned or incurred, regardless of the actual time of collection or payment.
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Adjusting Entries
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Entries required at the end of an accounting period to record internal adjustments of various accounts due to the matching principle of accounting
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Assets
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Resources available for use by the business - that is, anything owned by the business that has monetary value
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Auditing
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The branch of accounting that examines a firm's financial statements and internal controls for the purpose of expressing opinions regarding the financial statements
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Balance Sheet
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Statement of the financial position of the hospitality establishment on a given date, giving the account balances for assets, liabilities, and ownership equity
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Bookkeeping
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The recording and classification of transactions
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Business Entity Principle
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An accounting principle that requires that a business maintain its own set of records and accounts that are separate from other financial interests of its owners
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Cash Basis Accounting
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System of reporting revenues and expenses at the time they are collected or paid, respectively
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Conservatism Principle
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An accounting principle that requires accounting procedures that recognize expenses as soon as possible, but delay the recognition of revenues until they are ensured. For example, nonrefundable deposits for future services should be recognized as liabilities until the service is actually performed.
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Consistency Principle
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An accounting principle that requires that once an accounting method has been adopted, it should be followed from period to period in the future unless a change in accounting methods is warranted and disclosed
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Continuity of the Business Unit Principle
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The assumption in preparing the accounting records and reports that the business will continue indefinitely and that liquidation is not a prospect - in other words, that the business is a going concern.
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Corporation
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A form of business organization that provides a separate legal entity apart from its owner or owners
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Cost Accounting
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The branch of accounting dealing wtih the recording, classification, allocation, and reporting of current and prospective costs in order ot aid operations personnel in controlling operations
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Cost Principle
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An accounting principle that requires recording the value of a transaction for accounting purposes at the actual transaction price (cost).
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Double Taxation
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This occurs when both corporate profits and dividends paid to stockholders are taxed.
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Expenses
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Costs incurred in providing the goods and services offered.
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Financial Accounting
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A branch of accounting dealing with recording, classifying, and summarizing transactions involving revenues, expenses, assets, and liabilities.
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Financial Audit
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An independent, external audit.
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Full Disclosure Principle
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An accounting principle that requires that a business's financial statements provide information on all the significant facts that have a bearing on their interpretations. Types of disclosures include the accounting methods used, changes in the accounting methods, contingent liabilities, events occurring subsequent to the financial statement date, and unusual and nonrecurring items.
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Fundamental Accounting Equation
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The equation upon which all double-entry bookkeeping is based: Asset equal liabilities plus owners' equity. This equation is a balance to be tested and proven, not a formula to be calculated.
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General Partner
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The member(s) of a limited partnership who has (have) unlimited liability for the debts of a partnership.
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Going Concern Principle
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An accounting principle that requires the preparation of accounting records and reports under the assumption that the business will continue indefinitely and that liquidation is not a prospect; also referred to as continuity of the business unit principle.
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Income Statement
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A report on the profitability of operations, including revenues earned and expenses incurred in generating the revenues for the period of time covered by the statement.
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Liabilities
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Claims to the business's assets by parties external to the business
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Limited Liability Company
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An unincorporated business entity that is not restricted to one class of stock and may have any number of owners. It combines the corporate feature of limited liability with the favorable tax treatment of partnerships and sole proprietorship.
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Limited Partner
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The member(s) of a limited partnership who has (have) limited liability. Limited partners may not actively participate in managing the business.
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Limited partnership
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A partnership in which one or more of the partners have limited liability; that is, their liability is limited to the amount of their investment in the partnership and their personal assets are not vulnerable to their business's creditors. Every partnership must have at least one general partner, and there are several criteria that must be met in the cast of a limited partnership.
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Managerial Accounting
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The branch of accounting that provides information to various management levels for the enhancement of controls, usually in the form of budgets.
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Matching Principle
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An accounting principle that requires that expenses and revenues be matched to the period in which they were incurred or earned regardless of when they are actually realized.
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Materiality Principle
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An accounting principle that states that only items that are "material" or that "make a difference" should be presented in financial statements. For example, materiality may be established by a rule of thumb that states that an item is recognized if it exceeds a certain percentage of total assets or income.
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Objective Evidence Principle
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An accounting principle that states that all accounting transactions and the resulting accounting records should be based on objectively determined evidence to the greatest extent possible.
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Owners' Equity
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Financial interest of the owners of a business in that business - equal to assets minus liabilities
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Partnership
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An unincorporated business owned by two or more individual. The partners co-own all the assets and liabilities of the business and share in some manner in its profits or losses.
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Revenues
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Inflows of assets resulting from sales of goods or services to customers.
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S Corporation
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A type of corporation in which profits are taxed in the same manner as those of a partnership; S Corporations thus avoid double taxation.
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Sole Proprietorship
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An unincorporated business entity that is owned by a single individual.
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Statement of Cash Flows
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A statement that reflects the cash inflows and outflows of a business for a period of time. It explains the change in cash by showing the effects on cash of a business's operating, investing, and financing activities for the accounting period.
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Tax Accounting
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The branch of accounting dealing with the preparation and filing of tax forms with the various governmental agencies.
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Unit of Measurement Principle
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The accounting principle that requires financial data to be recorded with a common unit of measure. In the U.S. that common unit is the dollar.
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Account
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The basic element in an accounting system used for classifying and summarizing business transactions
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Account Balance
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The difference between the sum of the debits and the sum of the credits in an account.
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Balance Sheet Accounts
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Accounts that are never closed, such as asset, liability, and owners' equity accounts
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Chart of Accounts
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A listing of the titles (names) of all the accounts used by a particular business's accounting system. A chart of accounts should be sufficiently flexible to allow individual owners or managers to add or delete accounts to meet the specific needs of their properties. A company's chart of accounts defines the amount of detail that may be shown on its financial statements.
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Compound Journal Entries
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Entries in the general journal that involve more than two accounts.
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Credit
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Decrease in an asset or increase in a liability or capital - entered on the right side of an account; such amounts are said to be credited to the account.
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Credit Balance
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A balance in which the sum of the credits is greater than the sum of the debits
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Debit
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Increase in an asset or decrease in a liability or capital - entered on the left side of the account; such amounts are said to be debited or charged to the account.
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Debit Balance
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A balance in which the sum of the debits is greater than the sum of the credits.
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Double Entry Accounting
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A system of accounting in which every transaction affects and is recorded in at least two accounts, and the debits of the entry must equal the credits of the entry
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General Ledger
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The principle ledger, containing all of the balance sheet and income statement accounts (including assets, liabilities, owner's equity, revenues, expenses, and owner's drawing).
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Journalizing
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The recording of transactions in a journal before they are entered in a ledger; the journal keeps a record of details of the transactions.
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Nominal Accounts
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Temporary accounts that are closed after each accounting cycle, such as revenue and expense accounts.
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Normal Balance
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The kind of balance, either debit or credit, that an account usually has.
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Posting
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The process of transferring amounts recorded in the journal to the appropriate ledger accounts
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T-Account
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A representation of an actual account; it consists of a title, a right side, and a left side.
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Trial Balance
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A listing of the general ledger accounts and their debit and credit balances in order to test the equality of the balances.
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Accruals
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Adjusting entries made for business data that have not yet been entered into accounts.
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Cost of Asset
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Amount paid by a business to purchase an asset.
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Deferrals
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Adjusting entries made for business data that have already been recorded in other accounts.
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Depreciable Assets
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Property and equipment owned by a business that last more than one year and are used to generate revenue.
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Estimated Salvage Value
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The estimated market value of a depreciable asset at the end of its useful life.
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Estimated Useful Life
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The estimated length of time that a depreciable asset will be used to help generate revenue.
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Unearned Revenues
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The offset for cash received for services before they are rendered.
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Callable
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Subject to a demand for presentation for payment.
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Capital Stock
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Shares of ownership of a corporation; general term that covers all classes of common and preferred stock.
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Common Stock
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Capital stock of a corporation; stockholders who own common stock generally have voting rights.
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Cumulative
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Refers to the fact that if a dividend is not paid in one year, the past preferred dividend and the current year's dividend must be paid before anything can be paid to the common stockholders in a subsequent year.
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Dividend
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A distribution of earnings to owners of a corporation's stock.
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Organization Costs
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Costs incurred before a business is incorporated. They include such things as legal fees, promoter's fees, and fees paid to the state for incorporating.
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Par Value
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An arbitrarily selected amount associated with authorized shares of stock; it is also referred to as legal value.
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Preferred Stock
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Corporate stock that entitles the holder to preferential treatment on dividends, but may not give the holder voting rights.
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Stock Dividend
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The payment by a corporation of a dividend in the form of shares of its own stock without change in par value.
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Stock Split
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A division of corporate stock by the issuance to existing stockholders of a specific number of new shares with a corresponding lowering of par value for each outstanding share. In the case of a two for one stock split, the corporation would grant two shares for every one share previously held by the owners.
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Stock Subscription Plan
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A stock purchase plan in which individuals choosing to buy new shares of stock in the corporation complete a subscription form, agreeing to buy the stock at a certain price.
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Treasury Stock
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A corporation's own capital stock that the corporation has repurchased by not retired or reissued.
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Account Format
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A possible arrangement of a balance sheet that lists the asset accounts on the left side of the page and the liability and owner's equity accounts on the right side.
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Additional Paid-In Capital
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Payments for capital stock in excess of the stated and/or part value of the capital stock. Also called paid-in capital in excess of par.
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Balance Sheet
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Statement of the financial position of the hospitality establishment at a given date, giving the account balances for assets, liabilities, and ownership equity.
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Base-Year Comparison
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An analytical tool that allows a meaningful comparison of financial statements for several periods by using a base period as a starting point (set at 100%) and comparing all subsequent periods with the base.
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Common-Size Balance Sheets
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Balance sheets used in vertical analysis whose information has been reduced to percentages to facilitate comparisons.
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Comparative Balance Sheets
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The horizontal analysis of financial statements from the current and previous periods in terms of both absolute and relative variances for each line item.
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Consolidated Financial Statements
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The combined financial statements of a parent corporation and its subsidiary corporations.
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Current Assets
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Resources of cash and items that will be converted to cash or used in generating income within a year through normal business operations.
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Current Liabilities
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Obligations that are due within a year.
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Current Ratio
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Ratio of total current assets to total current liabilities expressed as a coverage of so many times; calculated by dividing current assets by current liabilities.
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Fluctuation Explanation
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A document providing detail not available on the balance sheet that explains drastic changes in balance sheet items.
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Goodwill
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The excess of a hospitality operation's purchase price over the dollars assigned to its individual assets.
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Horizontal Analysis
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Comparing financial statements for two or more accounting periods in terms of both absolute and relative variances for each line item.
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Liquidity
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The ability of an operation to meet its short-term (current) obligations by maintaining sufficient cash and/or investments easily convertible to cash.
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Long-Term Liabilities
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Obligations at the balance sheet date which are expected to be paid beyond the next 12 months, or if paid in teh next year, they will be paid from restricted funds; also called noncurrent liabilities.
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Noncurrent Receivables
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Accounts and notes receivable that are not expected to be collected within one year from the balance sheet date.
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Preferred Stock
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Stock issued by a corporation that provides preferential treatment on dividends, but may not give the stockholder voting rights.
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Report Format
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A possible arrangement of a balance sheet that lists assets first, followed by liabilities and owners' equity.
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Restricted Cash
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Cash that has been deposited in separated accounts, often for the purpose of retiring long-term debt.
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Retained Earnings
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An account for recording undistributed earnings of a corporation.
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Treasury Stock
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Capital stock of a corporation that the corporation has repurchased for future issuance.
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Vertical Analysis
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Analyzing individual financial statements by reducing financial information to percentages of a whole; that is, income statement line items are expressed as percentages of total revenue; balance sheet assets are expressed as percentages of total assets; and so forth.
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Working Capital
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Current assets minus current liabilities
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Capacity Costs
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Fixed charges relating to the physical plant or the capacity to provide goods and services to guests.
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Common-Size Income Statements
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Income statements used in vertical analysis whose information has been reduced to percentages to facilitate comparisons.
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Comparative Income Statements
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Horizontal analysis of income statements for two accounting periods in terms of both absolute and relative variances for each line item.
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Daily Report of Operations
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A frequent major report prepared for management.
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Departmental Income Statements
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Supplements to the income statement that provide management with detailed financial information for each operating department and service center; also referred to as schedules.
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Expenses
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Costs incurred in providing the goods and services offered.
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Gain
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An increase in assets, a reduction in liabilities, or a combination of both resulting from incidental transactions and from all other transactions and events affecting the operation during the period, except those that count as revenues or investments by owners.
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Loss
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A decrease in assets, an increase in liabilities, or a combination of both resulting from incidental transactions and from other transactions and events affecting the operation during a period, except those that count as expenses or distributions to owners.
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Responsibility Accounting
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The organization of accounting information (as on an income statement) that focuses attention on departmental results such as the rooms and food departments.
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Revenue
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The amount charged to customers in exchange for goods and services
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Summary Income Statement
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An income statement intended for external users that lacks the detail of supporting schedules.
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Uniform Systems of Accounts
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Standardized accounting systems prepared by various segments of the hospitality industry offering detailed information about accounts, classifications, formats, the different kinds, contents, and uses of financial statements and reports, and other useful information.
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Cash Equivalents
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Short-term, highly liquid investments such as U.S. Treasury bills and money market accounts.
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Cash Inflows
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Cash received by a hospitality organization during an accounting period.
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Direct Method
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One of two methods for converting net income to net cash flow from operations. This method shows cash receipts from sales and cash disbursements for expenses and requires that each item on the income statement be converted from an accrual basis to a cash basis.
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Indirect Method
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One of two methods for converting net income to net cash flow from operations. This method starts with net income and then adjusts for noncash items included on the income statement.
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Statement of Cash Flows
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Explains the change in cash for the accounting period by showing the effects on cash of a business's operating, investing, and financing activities for the accounting period.
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Accounting Cycle
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Sequence of principal accounting procedures of a fiscal period; analyzing transactions, journal entry, posting to ledger, trial balance, adjustments, preparation of periodic financial statements, account closing, post-closing trial balance.
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General Journal
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Record of all accounting transactions
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Generally Accepted Accounting Principles (GAAP)
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Accounting principles that have become accepted over time through common usage and also through the work of major accounting bodies. They provide a uniform basis for preparing financial statements.
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Journals
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Accounting records of business transactions.
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Ledger
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A group of related accounts that constitute a complete unit.
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Permanent Accounts
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A classification of owners' equity accounts that are not closed at the end of an accounting period; for example, accounts for recording capital stock and retained earnings
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Specialized Journal
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A journal used to accelerate the recording of specific kinds of accounting transactions.
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Average Costs
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Total production and service costs divided by the quantity of production.
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Avoidable Costs
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Costs that are not incurred when a hospitality operation shuts down (for example, when a resort hotel closes for part of the year).
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Capacity Fixed Costs
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Fixed charges relating to the physical plant or the capacity to provide goods and services to guests
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Controllable Costs
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Costs over which a manager is able to exercise judgment and hence should be able to keep within predefined boundaries or limits.
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Cost Allocation
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The process of distributing expenses among various departments.
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Differential Costs
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Costs that differ between two alternatives.
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Discretionary Fixed Costs
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Costs that managers may in the short run choose to avoid. These costs do not affect an establishment's capacity.
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Fixed Costs
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Costs that remain constant in the short run even though sales volume varies; examples include salaries, rent expense, insurance expense.
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High/Low Two-Point Method
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The simplest approach to estimating the fixed and variable elements of a mixed cost. It bases the estimation on data from two extreme periods.
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Incremental Cost
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The cost to produce one more unit; includes the variable costs and the variable portion of the mixed costs.
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Indifference Point
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The level of activity at which the cost is the same under either a fixed or a variable cost arrangement
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Mixed Costs
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Costs that are a mixture of both fixed and variable costs.
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Multiple Allocation Base Approach (MABA)
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The use of different allocation bases to allocate different overhead costs among departments
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Opportunity Cost
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Cost of foregoing the best alternative opportunity in a decision-making situation involving several alternatives
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Overhead Costs
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All expenses other than the direct costs of profit centers; examples include undistributed operating expense, management fees, fixed charges, and income taxes.
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Regression Analysis
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A mathematical approach to fitting a straight line to data points such that the differences in the distances of the data points from the line are minimized; used in forecasting when a dependent variable (for example, restaurant covers) to be forecasted is through to be casually related to one or more independent variables (for example, rooms sold)
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Relevant Costs
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Costs that must be considered in a decision-making situation; must be differential, future, and quantifiable.
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Scatter Diagram
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A graphic approach to determining the fixed and variable elements of a mixed cost.
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Single Allocation Base Approach (SABA)
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The allocation of overhead costs among departments using a single allocation base (such as departmental square footage).
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Standard Costs
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Forecasts of what actual costs should be under projected conditions; a standard of comparison for control purposes or for evaluations of productivity.
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Step Costs
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Costs that are constant within a range of activity, but different among ranges of activity
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Sunk Costs
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Past costs relating to a past decision; for example, the net book value of a fixed asset.
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Variable Costs
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Costs that change proportionately with sales volume.
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Breakeven Point
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The level of sales volume at which total revenues equal total costs
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Contribution Margin
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Sales less cost of sales for either an entire operating department or for a given product; represents the amount of sales revenue that is contributed toward fixed costs and/or profits.
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Contribution Margin Ratio (CMR)
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The contribution margin divided by the selling price. Represents the percentage of sales revenue that is contributed toward fixed costs and/or profits.
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Cost-Volume-Profit (CVP) Analysis
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A set of analytical tools used by managers to examine the relationships among various costs, revenues, and sales volume in either graphic or equation form, allowing one to determine the revenue required at any desired profit level. Also called breakeven analysis.
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Margin of Safety
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The excess of budgeted or actual sales over sales at breakeven.
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Operating Leverage
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The extent to which an operation's expenses are fixed rather than variable; an operation that substitutes fixed costs for variable costs is said to be highly levered.
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Profit-Volume Graph
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A graph that focuses on the impact on profits of changes in sales volume; revenues and costs are not shown.
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Sensitivity Analysis
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The study of the sensitivity of the CVP model's dependent variables (such as room sales) to changes in one or more of the model's independent variables (such as variable costs and selling prices).
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Weight Average Contribution Margin Ratio (CMRw)
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In a multiple product situation, an average contribution margin for all operated departments that is weighted to reflect the relative contribution of each department to the establishment's ability to pay fixed costs and generate profits.
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Elastic Demand
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A situation in which the percentage change in quantity demanded exceeds the percentage change in price.
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Hubbart Formula
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A bottom-up approach to pricing rooms. In determining the average price per room, this approach considers costs, desired profits, and expected rooms sold.
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Inelastic Demand
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A situation in which a percentage change in price results in a smaller percentage change in quantity demanded
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Integrated Pricing
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An approach to pricing in a hospitality operation having several revenue-producing departments that sets prices for goods and/or services in each profit center so as to optimize the entire operation's net income.
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Mark-Up
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An approach to pricing of goods and services that determines retail prices by adding a certain percentage to the cost of goods sold. The mark-up is designed to cover all non-product costs (for example, labor, utilities, supplies, interest expense, taxes, and so forth) as well as desired profit. Ingredient mark-up is based on all ingredients. Prime ingredient mark-up bases the mark-up solely on the cost of the main ingredient.
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Menu Engineering
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A method of menu analysis and food pricing that considers both the profitability and popularity of competing menu items.
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$1 per $1000 approach
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An approach to rooms pricing that sets the price of a room at $1 for each $1000 of project costs per room.
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Price Elasticity of Demand
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An expression of the relationship between a change in price and the resulting change in demand
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Unit Elastic
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Elasticity of demand is exactly 1. Any percentage change in price is accompanied by the same percentage change in quantity demanded.
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Yield Management
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Selling rooms in a way that maximizes total revenues. Before selling a room in advance, the hotel considers the probability of being able to sell the room to other market segments that are willing to pay higher rates.
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Accounting Controls
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Controls for safeguarding assets and ensuring the accuracy and reliability of accounting data.
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Administrative Controls
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Controls for promoting operational efficiency and encouraging adherence to managerial policies.
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Detective Controls
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Controls designed to discover problems and to monitor preventive controls. Detective controls include external audits, surprise cash internal audits, and bank reconciliations
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Flowchart
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A visual representation of the movement of information and documents within an operation.
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Internal Control Questionnaire (ICQ)
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A second device for studying an operation's system of internal control. The ICQ uses a series of question about controls in each accounting area to identify weaknesses.
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Lapping
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A type of theft that occurs when an accounts receivable clerk steals cash received on an account, then posts cash received the next day on a second account to the first account.
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Preventive Controls
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Controls implemented before a problem occurs, including such things as the use of locks to safeguard assets, the separation of duties to preclude operating personnel from controlling inventories, and general and specific authorization policies.
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Segregation of Duties
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An element of internal control systems in which different personnel are assigned the different functions of accounting, custody of assets, and production; the purpose is to prevent and detect errors and theft.
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First In First Out (FIFO) Method of Inventory Valuation
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A method of valuing inventory in which the first units into inventory are considered sold first; hence, ending inventory consists of the latest purchases.
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Gross Profit Method of Inventory Valuation
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A method of estimating ending inventory based on a historical gross profit percentage for the firm.
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Last In First Out (LIFO) Method of Inventory Valuation
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A method of valuing inventory in which the last units into inventory are considered sold first, hence, ending inventory consists of the earliest purchases.
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Lower of Cost or Market
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An accounting procedure for valuing ending inventory based on the generally accepted accounting principle of conservatism.
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Merchandise Inventory
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Goods that a hospitality firm holds for resale to guests.
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Periodic Inventory System
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A system of accounting for inventory under which cost of goods sold must be computed. There are no continuous inventory records kept, so a physical count of the storeroom is required to determine the inventory on hand.
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Perpetual Inventory System
|
A system of accounting for inventory that records receipts and issues and provides a continuous record of the quantity and cost of merchandise in inventory.
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Retail Method of Inventory Valuation
|
A method of estimating ending inventory based on the relationship between cost and retail price.
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Specific Identification Method of Inventory Valuation
|
A method of valuing inventory by identifying the actual costs of the purchased and issued units.
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Weighted Average Method of Inventory Valuation
|
A method of valuing inventory in which the value is determined by averaging the cost of items in the beginning inventory with the cost of items purchased during the period.
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Adjusted Net Income Approach
|
An indirect method of cash budgeting that determines cash flow by adjusting net income to a strictly cash basis. The method is generally preferred for cash budgeting over periods longer than six months.
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Aging of Accounts Receivable
|
A listing of the accounts receivable showing days outstanding. Used by management to identify delinquent accounts for follow-up collection efforts.
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Cash Receipts and Disbursements Approach
|
A cash budgeting method that shows direct sources and uses of cash. It is best used for short-term budgeting (less than six months), since the reliability of distant operational numbers decreases rapidly.
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Effective Interest Rate
|
Interest that has been effectively charged, based on interest paid and the actual amount borrowed.
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Gross Profit Method of Inventory Valuation
|
A method of estimating ending inventory based on a historical gross profit percentage for the club.
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Net Working Capital
|
Current assets less current liabilities.
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Retail Method of Inventory Valuation
|
A method of estimating ending inventory that is based on the relationship between cost and retail price.
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Accelerated Methods of Depreciation
|
Methods of depreciation that result in higher depreciation charges in the first year; charges gradually decline in amount over the lives of fixed assets. Sum of the years' digits and double declining balance are accelerated methods of depreciation.
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Amortization
|
The systematic transfer of the partial cost of an intangible long-lived asset (such as purchased goodwill, franchise rights, and trademarks) to an expense called amortization. The asset cost is generally reduced and shown at its remaining cost to be amortized.
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Capital Expenditure
|
An expenditure for which the benefits are expected to be received over a period of greater than one year. It is recorded to an asset account and not directly to expense.
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Capital Lease
|
A classification of lease agreements that are of relatively long duration and are generally noncancellable and in which the lessee assumes responsibility for executory costs. For accounting purposes, capital leases are capitalized in a way similar to that for the purchase of a fixed asset (i.e., recorded as an asset with recognition of a liability).
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China, Glass, Silver, Linen, and Uniforms
|
A unique Property & Equipment asset account found on a hospitality firm's balance sheet.
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Construction in Progress
|
An asset commonly found in the Property & Equipment section of a hospitality firm's balance sheet. It represents all labor, materials, advances on contracts, and interest on construction loans that are incurred in the current construction of property and equipment.
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Copyright
|
An exclusive right over a literary or artistic work granted by the federal government to the creator and extended for the life of the creator plus 50 years. Copyrights should be amortized over their lives or over the years in which revenue from the work is expected.
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Deferred Charges
|
Expenses that are prepaid yet are noncurrent. Since they are noncurrent, they benefit future periods. They are distinguished from prepaid expenses that would show up in the current assets section of the balance sheet. Examples include advertising and maintenance expenses or financing costs related to long-term debt. Also called deferred assets or deferred expenses.
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Deferred Income Taxes
|
When the income taxes on the statement of income exceed the amount of liability to the government tax agencies for the year, the business records the excess as deferred income taxes. This excess generally represents timing differences with respect to payment dates of taxes.
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Depreciation
|
The systematic transfer of part of a tangible long-lived asset's cost to an expense called depreciation. The asset cost is generally not reduced, but is offset by an entry to the accumulated depreciation account, which represents the depreciation recorded to an asset from the point at which it was acquired. Depreciation is usually associated with assets classified as property and equipment, but not with land.
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Double Declining Balance Depreciation
|
An accelerated method of depreciation that ignores salvage value in the computation of annual depreciation. Although the salvage value is ignored, on must be careful not to depreciate the asset below its salvage value in the later years.
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Franchise
|
A common intangible asset found in the hospitality business. It is the right to do a certain business in a given geographical area for a certain period of time.
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Goodwill
|
An intangible asset that is the excess of the purchase price over the appraised value of a company's assets. Goodwill exists when the expected future earnings of an operation are greater than the normal rate for the industry. Goodwill is put on the books, however, only when it is purchased by a company.
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Intangible Assets
|
Noncurrent assets that do not have physical substance; their value is derived from rights or benefits associated with their ownership. Examples include franchises, leaseholds, goodwill, patents, copyrights, and trademarks. When intangible assets are purchased, they are placed in an asset account and amortized under a straight-line technique over a period of up to 40 years.
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Leasehold
|
The right to use property or equipment by virtue of a lease for a fixed number of years. It could be put on the books if a lease requires the lessee to pay the last year's rent in advance.
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Leasehold Improvements
|
Renovations or remodeling performed on leased buildings or space prior to the commencement of operations. For accounting purposes, all leasehold improvements are capitalized (i.e., recorded as an asset with recognition of a liability). This asset is to be amortized over the remaining life of the lease or the life of the improvement, whichever is shorter.
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Lump Sum Purchase
|
The purchase of two or more assets made for one price. Sometimes this will include a building, which is depreciable, and land, which is non-depreciable.
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Patent
|
An exclusive right granted by the federal government to use, manufacture, sell, or lease a product or design. The right is granted for 17 years.
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Preopening Expense
|
Costs associated with certain business activities that occur before a company is operational. They include amounts spent for employee training, salaries, and wages; and advertising and promotional expenses.
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Revenue Expenditure
|
An expenditure a hospitality firm makes for which the benefits are expected to be received within a year. Examples include wages expense and utilities expense.
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Salvage Value
|
Estimated market value of an asset at the time it is to be retired from use. Also called residual value.
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Security Deposits
|
Funds deposited to secure occupancy or utility services (such as telecommunications, water, electricity, and gas) and any similar types of deposits.
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Straight-Line Depreciation
|
A method of distributing depreciation expense evenly throughout the estimated life of an asset (that is, the same amount of depreciation is taken on the asset in each year of its life).
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Sum of the Years' Digits Depreciation
|
A method that uses a fraction in computing depreciation expense. The numerator of the fraction is the remaining years of the asset's estimated useful life. This figure changes with each year's computation of depreciation. The denominator of the fraction is the sum of the years' digits of the asset's useful life. This figure remains constant with each year's computation of depreciation. Each year's depreciation expense is determined by multiplying this fraction by the asset's cost less its salvage value. This method is an accelerated method of depreciation and hence assigns more depreciation in the early years and less in the later years.
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Trademark
|
A name, mark, or character given legal protection. It is an intangible asset.
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Units of Production Depreciation
|
A method of depreciation in which depreciation is taken based on the usage of the asset.
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Accounting Rate of Return (ARR)
|
An approach to evaluating capital budgeting decisions based on the average annual project income (project revenues less project expenses) divided by the average investment.
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Annuity
|
A stream of funds provided by a capital investment when the amounts provided are the same and at equal intervals (such as the end of each year).
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Capital Rationing
|
An approach to capital budgeting used to evaluate combinations of projects according to their net present value (NPV).
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Discount Rate
|
The term used for k when finding a present value
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Hurdle Rate
|
The established minimum internal rate of return that must be met or exceeded for a project to be accepted under the internal rate of return model of capital budgeting.
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Incremental Cash Flow
|
The change in cash flow of an operation that results from an investment.
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Internal Rate of Return (IRR)
|
An approach to evaluating capital budgeting decisions based on the rate of return generated by the investment.
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Net Present Value (NPV)
|
An approach to evaluating capital budgeting decisions based on discounting the cash flows relating to the project to their present value; calculated by subtracting the project cost from the present value of the discounted cash flow stream.
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Payback
|
An approach to evaluating capital budgeting decisions based on the number of years of annual cash flow generated by the fixed asset purchase required to recover the investment.
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Time Value of Money
|
The process of placing future years' income on an equal basis with the current year expenditures in order to facilitate comparison.
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Bargain Purchase Provision
|
One of four FASB capitalization criteria for determining the status of non-cancelable leases. Under this provision, if a lease has a bargain purchase option, the lessee must classify and account for the lease as a capital lease. A bargain purchase option gives the lessee the option to purchase the leased property at the end of the lease at a price substantially lower than the leased property's expected market value at the date the option is to be exercised.
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Capital Lease
|
A classification of lease agreements that are of relatively long duration, generally non-cancelable, and in which the lessee assumes responsibility for executory costs. For accounting purposes, capital leases are capitalized in a way similar to the purchase of a fixed asset (that is, recorded as an asset with recognition of a liability).
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Contingent Rent
|
Rent based on specified variables, such as a percentage of revenues about a given amount.
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Economic Life Provision
|
One of four FASB capitalization criteria for determining the status of non-cancelable leases. If the lease term is equal to 75% or more of the estimated economic life of the leased property, the lessee must classify and account for the lease as a capital lease.
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Executory Costs
|
Obligations for property taxes, insurance, and maintenance of leased property.
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Incremental Borrowing Rate
|
The rate of interest a lessee would have to pay if financing the purchase of the item to be leased.
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Lease
|
an agreement conveying the right to use resources (equipment, building, and/or land) for specified purposes for limited periods of time. The lessor owns the property and conveys the right of its use to the lessee in exchange for periodic cash payments called rent.
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Leasehold Improvements
|
Renovations or remodeling performed on leased buildings or space prior to the commencement of operations. For accounting purposes, all leasehold improvements are capitalized (that is, recorded as an asset with recognition of a liability).
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Lessee
|
Party that makes periodic cash payments called rent to a lessor in exchange for right to use property.
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Lessor
|
Party that owns property and conveys the right of its use to the lessee in exchange for periodic cash payments called rent.
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Management Contract
|
Contract under which hotel owners make substantial payments from the hotel's gross revenues to hotel management companies.
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Off-Balance-Sheet Financing
|
Term sometimes applied to leasing, because property acquired for use through an operational lease is not shown on the balance sheet. Future rent obligations also do not appear on the balance sheet, although some footnote disclosure may be required.
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Operating Lease
|
A classification of lease agreements that are usually of relatively short duration, easily cancelled, and in which the lessor retains responsibility for executory costs. For accounting purposes, operating leases are not capitalized, but simply recognized as an expense when rent is paid.
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Rent
|
Cash payments made by a lessee to a lessor.
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Residual Value
|
With regard to leasing, the estimated market value of a leased item at the end of the lease term.
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Sale and Leaseback
|
A transaction whereby an owner of real estate agrees with an investor to sell the real estate to the investor and simultaneously rent it back for a future period of time, allowing uninterrupted use of the property while providing the operation with capital that was previously tied up in the property.
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Title Transfer Provision
|
One of four FASB capitalization criteria for determining the status of non-cancelable leases. If the property is transferred to the lessee by the end of the lease term, the lessee must classify and account for the lease as a capital lease.
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Triple Net Lease
|
A form of lease agreement in which the lessee is obligated to pay property taxes, insurance, and maintenance on the leased property.
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Value Recovery Provision
|
One of four FASB capitalization criteria for determining the status of non-cancelable leases. If the present value of minimum lease payments (excluding executory costs) equals or exceeds 90% of the excess of fair market value of the leased property over any applicable investment tax credit retained by the lessor, the lessee must classify and account for the lease as a capital lease.
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Variable Lease
|
A form of leasing agreement in which rental payments are based upon revenues.
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Average Tax Rate
|
The average rate in a graduated tax rate system that is paid by the tax payer. It is determined by dividing income tax expense by taxable income.
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Exempt function income
|
The club's gross income from dues, fees, charges, or similar amounts paid by members as consideration for providing goods, facilities, or services to the members, their dependents, or guests in the course of serving the exempt purposes of the organization.
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Marginal Tax Rate
|
The tax rate applicable to the next dollar of taxable income.
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Member Function Questionnaire
|
Form for capturing information from all functions of more than eight persons.
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Nonmember Income
|
Club income from persons other than members, their dependents and guests.
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Sales Taxes
|
Taxes levied on the sales of a club. This tax is generally levied at the state level.
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Section 277 Clubs
|
Clubs subject to federal income taxes.
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Section 501(c)(7) Clubs
|
Clubs exempt from federal income taxes.
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Tax Avoidance
|
Legally avoiding the payment of taxes.
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Tax Evasion
|
The illegal and fraudulent denial or concealment of a current or future tax liability.
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Unrelated Business Income
|
Income not related to the stated purpose of the club and subject to federal income taxes.
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Path of Travel
|
A continuous, unobstructed three foot wide way of pedestrian passage by which an altered area may be approached, entered, and exited, and which connects the altered area with an exterior approach (including sidewalks, streets, and parking areas), an entrance to the facility, and other parts of the facility. It includes restrooms, telephones, and drinking fountains serving the altered area.
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Readily Achievable
|
Easily accomplishable and able to be carried out without much difficulty or expense.
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Breach of Contract
|
A failure, without legal excuse, to perform any promise that forms teh whole or part of a contract.
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Contract
|
A legal agreement creating legally enforceable obligations between two or more parties.
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et seq. (Latin)
|
"And the following"
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Party
|
A person who is actively included in the prosecution or defense of a legal proceeding.
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Status of Limitations
|
Any law which fixes the time within which parties may take judicial action to enforce rights or else be thereafter barred from enforcing them.
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Family Leave
|
Type of leave that can be taken under the FMLA for the birth, adoption, or foster-care placement of a child in order to care for that child.
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Family Member
|
One's spouse, child, or parent. The FMLA definition does not include siblings or parents-in-law.
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Medical Leave
|
Type of leave that can be taken under the FMLA to care for a spouse, child, or parent with a "serious health condition", or because of a "serious health condition" that makes an employee unable to perform the functions of his or her position.
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Serious Health Condition
|
Any illness, injury, impairment, or physical or mental condition that involves either (a) in-patient care in a hospital, hospice, or residential medical care facility; or (b) continuing treatment by a health-care provider.
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Essential Functions
|
The fundamental job duties of a particular employment position.
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Individual with a Disability
|
Broadly, anyone who has a physical or mental impairment that substantially limits one or more life activities, has a record of such an impairment, or is regarded as having such an impairment.
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Qualified Individual with a Disability
|
A person with a disability who satisfies the requisite skill, experience, education, and other job-related requirements of the employment position that the person holds or desires to hold and who, with or without reasonable accommodation, can perform the position's essential functions.
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Reasonable Accommodation
|
(1) Modifications or adjustments that are made to a job application process to enable a qualified applicant with a disability to be considered for employment, and (2) modifications or adjustments made to the work environment, or to the manner of circumstances under which a job position is customarily performed, that enable a qualified individual with a disability to perform the essential functions of that position.
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Employee's Earning Record
|
An individual record kept for each employee during the calendar year that shows gross wages earned and amounts withheld and deducted. Used at the end of the year to prepare IRS Form W-2.
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Federal Insurance Contributions Act (FICA)
|
An act that levies employment taxes on employers and employees are part of the federal Social Security program. Employers must deduct FICA taxes from employees' wages.
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Federal Unemployment Tax (FUTA)
|
A federal law imposing a payroll tax on employers for the purpose of funding national and state unemployment programs.
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Imprest Payroll Account
|
A payroll account for which a predetermined, fixed amount of funds are maintained or replenished as part of typical control procedures.
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Master Payroll File
|
A payroll file containing employee information, including employee names, addresses, Social Security numbers, wage rates, and payroll deduction information.
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Payroll Journal
|
A journal containing a record of each payroll check issued, along with the corresponding gross pay and various deductions for taxes, health care, and so on.
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Payroll Taxes
|
Additional taxes paid by the employer, which are based on employee wages. The three major payroll taxes are a result of the Federal Insurance Contribution Act (FICA), the Federal Unemployment Tax Act (FUTA), and the State Unemployment Tax Act (SUTA).
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State Unemployment Tax Act (SUTA)
|
An unemployment tax rate levied by individual states. The rate varies by state. However, employers may use the state tax rate as a credit against the federal rate.
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Cost of Goods Sold Variance
|
A group of variances used to examine differences between budgeted and actual amounts paid for goods sold and the total amount sold.
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Incremental Budgeting
|
Forecasting budgets based on historical financial information.
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Operations budget
|
Management's detailed plans for generating revenue and incurring expenses for each department within the operation; also referred to as the revenue and expense budget.
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Revenue Variances
|
A group of variances used to examine differences between budgeted and actual prices and volumes.
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Significance Criteria
|
Criteria used to determine whether variances are significant Generally expressed in terms of both dollar and percentage differences.
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Variable Labor Variances
|
A group of variances used to examine differences between budgeted and actual variable labor expense.
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Variance Analysis
|
Process of identifying and investigating causes of significant differences (variances) between budgeting plans and actual results.
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Zero-Based Budgeting (ZBB)
|
An approach to preparing budgets that requires the justification of all expenses; assumes that each department starts with zero dollars and must justify all budgeted amounts.
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Franchise
|
As used in this book, a franchise is an agreement by which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods or procedures prescribed by the franchisor; the franchiser undertakes to assist the franchisee through advertising, promotion, and other advisory services; the franchise may encompass an exclusive right to sell a product or service to conduct a business in a specified territory.
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Copyright (2)
|
Common law and/or statutory rights to publish and reproduce works of art or literature and the exclusive privilege of printing, or otherwise multiplying, publishing, and vending copies of certain literary or artistic productions. The legal effect of a copyright is to create in the owner an exclusive property right with the incidental power to lease or license the use thereof by others on stipulated terms.
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Copyright Infringement
|
The unauthorized use or performance of a copyrighted musical composition.
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Royalty
|
A payment made by a licensee for the right to perform music.
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Tariff
|
As used in this book, a tariff is a public document filed with the public service commission by a public utility setting forth the services being offered by the carrier, schedule of rates and charges with respect to services, and governing rules, regulations, and practices relating to those services.
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Promulgate
|
To publish; to announce officially.
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Affirmative Duty
|
The duty or obligation of making proof, in the first instance, of matters alleged or in the pleadings of the court; in other words, the duty to sustain the burden of proof.
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ex parte (Latin)
|
Refers to a judicial proceeding taken or granted at the insistence of and for the benefit of one party only, and without the necessity of the other party's presence.
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Search Warrant
|
An order in writing in the name of the state, signed by a magistrate and directed to a peace officer commanding him/her to search for personal property and bring it before the magistrate.
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Summary Proceedings
|
Any proceedings by which a controversy is settle, case disposed of, or trial conducted in a prompt and simple manner, without the aid of a jury.
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Warrantless Search
|
A search of property without a search warrant.
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Appellate Court
|
A court of review to determine whether the rulings and judgment of the court below on the case were correct. It is not a forum in which to make a new case.
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|
Civil Action or Civil Suit
|
A proceeding in a court by one party against another for the enforcement or protection of a private right or the redress of a private wrong.
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|
Civil Rights
|
Those personal and natural rights of each human being protected by the U.S. Constitution, in particular the 13th and 14th amendments, and other federal and state laws. Examples of such civil rights include the freedom of speech, press, and religion, the right to be free of discrimination based on race, color, creed, religion, etc.
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Compensatory Damages
|
Awarded to make good or to replace loss caused by a wrong or injury; are confined to compensating for injuries sustained. They do not include punitive damages.
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Conviction
|
The final consummation of prosecution against the accused, including judgment or sentence rendered pursuant to a verdict, confession, or plea of guilty to a criminal offense.
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Injunction
|
A judicial process whereby a party is required by the court to do or refrain from doing a particular thing.
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Misdemeanors
|
Generally, less serious crimes that are punishable by fines or jail times not to exceed one year.
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Accounts Receivable Turnover
|
A measure of the rapidity of conversion of accounts receivable into cash; calculated by dividing revenue by average accounts receivable.
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Acid Test Ratio
|
Ratio of total cash and near-cash current assets to total current liabilities.
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Activity Ratios
|
A group of ratios that reflect management's ability to use the property's assets and resources.
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Asset Turnover
|
An activity ratio. Total revenues divided by average total assets.
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Average Collection Period
|
The average number of days it takes a hospitality operation to collect all its accounts receivable; calculated by dividing the accounts receivable turnover into 365.
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Average Daily Rate (ADR)
|
A key rooms department operating ratio. Rooms revenue divided by number of rooms sold. Also called average room rate.
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Average Occupancy per Room Ratio
|
An activity ratio measuring management's ability to use the lodging facilities. The number of guests divided by the number of rooms sold.
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Beverage Cost Percentage
|
A ratio comparing the cost of beverages sold to beverage sales; calculated by dividing the cost of beverages sold by by beverage sales
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Complimentary Occupancy
|
The number of complimentary rooms for a period divided by the number of rooms available.
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Debt-Equity Ratio
|
Compares the debt of a hospitality operation to its net worth (owners' equity) and indicates the operation's ability to withstand adversity and meet its long-term obligations; calculated by dividing total liabilities by total owners' equity.
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Double Occupancy
|
The number of rooms occupied by more than one guest divided by the number of rooms occupied by guests. More accurately called multiple occupancy.
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|
Earnings per Share (EPS)
|
A ratio providing a general indicator of the profitability of an operation by comparing net income to the average common shares outstanding. If preferred stock has been issued for the operation, then preferred dividends are subtracted from net income before calculating EPS.
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Financial Leverage
|
The use of debt in place of equity dollars to finance operations and increase the return on the equity dollars already invested.
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|
Fixed Charge Coverage Ratio
|
A variation of the number of times interest earned ratio that considers leases as well as interest expense. Lease expenses and earnings before interest and income taxes divided by interest expense and lease expense.
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|
Food Cost Percentage
|
A ratio comparing the cost of food sold to food sales; calculated by dividing the cost of food sold by total food sales.
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|
Gross Return on Assets (GROA)
|
Measures the rate of return on assets regardless of financing methods. Earnings before interest and income taxes divided by average total assets.
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|
Inventory Turnover
|
A ratio showing how quickly a hospitality operation's inventory is moving from storage to productive use; calculated by dividing the cost of food or beverages used by the average food or beverages inventory.
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|
Labor Cost Percentage
|
A ratio comparing the labor expense for each departments by the total revenue generated by the department; total labor cost by department divided by departmental revenues.
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|
Liquidity Ratios
|
A group of ratios that reveal the ability of an establishment to meet its short-term obligations.
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|
Long-Term Debt to Total Capitalization Ratio
|
A solvency ratio showing long-term debt as a percentage of the sum of long-term debt and owners' equity. Long-term debt divided by long-term debt and owners' equity.
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|
Number of Times Interest Earned Ratio
|
A solvency ratio expressing the number of times interest expense can be covered. Earnings before interest and taxes divided by interest expense.
|
|
|
Operating Cash Flows to Current Liabilities Ratio
|
A liquidity ratio that compares the cash flow from the firm's operating activities to its obligations at the balance sheet date that must be paid within twelve months. Operating cash flows divided by average current liabilities.
|
|
|
Operating Cash Flows to Total Liabilities Ratio
|
A solvency ratio that uses figures from both the statement of cash flows and the balance sheet. Operating cash flows divided by average total liabilities.
|
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|
Operating Efficiency Ratio
|
A measure of management's ability to generate sales and control expenses; calculated by dividing income after undistributed operating expenses by total revenue. Also called gross operating profit ratio.
|
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|
Operating Ratios
|
A group of ratios that assist in the analysis of hospitality establishment operations.
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|
Paid Occupancy
|
A measure of management's ability to efficiently use available assets. The number of rooms sold divided by the number of rooms available for sale.
|
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Price Earnings (PE) Ratio
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A profitability ratio used by financial analysts when presenting investment possibilities. The market price per share divided by the earnings per share.
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Profit Margin
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An overall measure of management's ability to generate sales and control expense; calculated by dividing net income by total revenue.
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Profitability Ratios
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A group of ratios which reflect the result of all areas of management's responsibilities.
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Property and Equipment Turnover
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A ratio measuring management's effectiveness in using property and equipment to generate revenue; calculated by dividing average total property and equipment into total revenue generated for the period. Sometimes called fixed asset turnover.
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Ratio Analysis
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The comparison of related facts and figures.
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Residual Income
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The excess of a hotel's net income over an established minimum return.
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Return on Assets (ROA)
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A ratio providing a general indicator of the profitability of a hospitality operation by comparing net income to total investment; calculated by dividing net income by average total assets.
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Return on Common Stockholders' Equity
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A variation of return on owners' equity that is used when preferred stock has been issued. Net income less preferred dividends paid to preferred stockholders divided by average common stockholders' equity.
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Return on Owners' Equity (ROE)
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A ratio providing a general indicator of the profitability of an operation by comparing net income to the owners' investment; calculated by dividing net income by average owners' equity.
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Revpar
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Revenue per available room. A combination of paid occupancy percentage and average daily rate. Room revenues divided by available revenues or, alternatively paid occupancy percentage times ADR.
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Seat Turnover
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An activity ratio measuring the rate at which people are served. The number of people served divided by the number of seats available.
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Solvency Ratio
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A measure of the extent to which an operation is financed by debt an is able to meet its long-term obligations; calculated by dividing total assets by total liabilities.
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Solvency Ratios
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A group of ratios that measure the extent to which the enterprise has been financed by debt and is able to meet its long-term obligations.
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Working Capital Turnover Ratio
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A liquidity ratio that compares working capital (current assets less current liabilities) to revenue.
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