HFT 2403
Chapter 6
The Balance Sheet
Questions Answered by Balance
Sheet
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Amount of Cash on Hand?
What is the Total Debt?
What is Funding Mix?
How Much is Owed to the Hotel?
Questions Answered by Balance
Sheet
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What are the Tax Liabilities?
Can Current Debt be Paid?
What is the Financial Strength?
How Much have Stockholders Invested in
the Assets?
Purposes of the Balance Sheet
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The Income Statement: Pertains to a
period of time
The Balance Sheet – Pertains to a given
date
Primarily use by creditors and investors
Used quite a bit for various ratio analysis
to monitor the overall “health” of the
business
Liquidity
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The ability of the operation to convert
assets to cash to meet current liabilities
Current Ratio- Used by creditor and
investors
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Current Assets / Current Liabilities
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s/b around 2 : 1
Balance Sheet Limitations
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Does Not Reflect Current Values of Assets
(Booked According to Cost Principle)
Does Not Include Some Things of Value
Such as Personnel, Location, Customer
Base, Goodwill
Numbers are of a Static Nature
Balance Sheet Limitations
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Becomes Quickly Outdated
Some Account Balances are Estimates
Such as Depreciation and Estimates for
Uncollectibles – Based on Best Judgment
Balance Sheet - The Statement
of Financial Position
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Assets = Liabilities + Equity
Statement of Assets, Liabilities, and
Owners’ Equity at a Point in Time
Balance Sheet - The Statement
of Financial Position
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Assets
Current Assets
Noncurrent Receivables
Investments
Property and Equipment
Other Assets
Balance Sheet - The Statement
of Financial Position
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Liabilities
Current Liabilities
Long Term Debt
Deferred Income Taxes
Commitments / Contingencies
Other Long-Term Liabilities
Balance Sheet - The Statement
of Financial Position
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Owners’ Equity
Capital Stock
Additional Paid In Capital
Retained Earnings
Treasury Stock
Balance Sheet Formats and
Structure
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Account Format - Assets on Left and
Liabilities and Equity on Right (p. 205)
Report Format - Assets First Followed by
Liabilities and Equity (p. 206)
Balance Sheet Formats and
Structure
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Current Assets - Converted to Cash or
Used in Operation in One Year or Normal
Operating Cycle
Listed in Order of Liquidity
Balance Sheet Formats and
Structure
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Cash (All Forms)
Marketable Securities
Receivables
Inventories
Prepaid Expenses
Noncurrent Assets
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Noncurrent Receivables - not expected to
be collected within one year - owners are
shown separate
Investments - securities, land not in use,
and affiliate advances not to be collected
within one year
Noncurrent Assets
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Property and Equipment - Fixed Assets,
Capital Leases - Less accumulated
depreciation
Smallwares - New USOA Recommends to
Expense or Write off Over 3 Years
Noncurrent Assets
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Other Assets - Deferred Charges, Security
Deposits
Preopening Expenses - New USOA
Recommends to Expense in Current Period
Other Assets
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Goodwill
Cash Surrender Value of Life Insurance
Deferred Charges
Possibly Deferred Income Taxes
Balance Sheet Formats and
Structure
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Current Liabilities - Obligations expected
to be Satisfied in One Year or Normal
Operating Cycle
Current Liability Presentation
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Payables
Advance Deposits
Current Maturities of Long Term Debts
Dividends Payable
Income Taxes Payable
Long Term Liabilities
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Obligations Beyond One Year
Notes Payable
Mortgages Payable
Bonds Payable
Capitalized Lease Obligations
Possibly Deferred Income Taxes
Owners’ Equity
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Preferred Stock, Par @ $$$
Shares Authorized
Shares Issued
Common Stock, Par @ $$$
Shares Authorized
Shares Issued
Owners’ Equity
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Treasury Stock
Additional Paid in Capital
Retained Earnings
Owners’ Equity
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Sole Proprietorship Capital
Partnership - Show Each Owner’s Capital
Withdrawal Accounts
Footnotes
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Significant Accounting Policies
Accounts and Notes Receivable
Inventories
Investments
Footnotes
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Property and Equipment
Current Liabilities
Long Term Debt
Capital Stock
Employee Benefit Plans
Footnotes
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Leases
Segments of Business
Supplemental Financial Information
Commitment/Contingent Liability
Income Taxes
Balance Sheet Analysis
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Common Size Statements or Vertical Analysis
Total Assets Equal 100%
Total Liabilities and Equity Equals 100%
Each Individual Account is Shown as a
Percentage of the Total Assets
Compare to Industry, Like Businesses or Self
Balance Sheet Analysis
Assets
Cash
A/R
Building
Total Assets
Liabilities & Equity
Liabilities
Accounts Payable
Mortgage Payable
Owners Equity
Total Liab. & Equity
10,000
20,000
70,000
100,000
10%
20%
70%
100%
10,000
80,000
10,000
100,000
10%
80%
10%
100%
Homework Chapter 6
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Problem 3
Problem 4
Problem 7