Hospitality Accounting and Financial Analysis

Comprehensive practice flashcards covering basic accounting principles, financial statement analysis (horizontal, vertical, trend), USALI standards, ratio analysis formulas, cost behavior patterns, and Cost-Volume-Profit (CVP) analysis.

Cash Basis Accounting

Recognizes transactions only when cash is actually received (inflow) or disbursed (outflow).

Accrual Basis Accounting

Recognizes revenues in the period they are earned and expenses in the period they are incurred, regardless of when cash actually changes hands.

Matching Principle

Requires expenses to be matched with the revenues they helped generate in the same accounting period.

Revenue Recognition Principle

Also known as the Realization Principle, it requires revenue to be recognized in the accounting period in which the performance obligation is satisfied (when service or goods are delivered).

Asset Method

A bookkeeping method for supplies where purchases are initially recorded as an asset, and the consumed portion is recognized as an expense after a physical count at the end of the period.

Deferrals

Adjusting entries where cash is paid or received before the expense or revenue is recognized in the books, such as Prepaid Insurance or Deferred Revenue.

Accruals

Adjusting entries where the expense or revenue is incurred or earned before any cash changes hands, such as Accrued Payroll or Accrued Revenue.

Vertical Analysis

Analyzing a single period by expressing every financial statement line item as a percentage of a primary base total, such as Total Sales for the Income Statement or Total Assets for the Balance Sheet.

Horizontal Analysis

Compares financial data across two consecutive periods to determine the absolute dollar change and the percentage relative change.

Trend Analysis

Tracks financial performance over multiple periods relative to a single base period, where the base year is set at $100\%$, to identify long-term patterns.

Common-Size Statements

Financial statements converted entirely into percentages to allow for easier comparison across different time periods or between businesses of different sizes.

Absolute Change

The actual dollar magnitude of a change between periods, calculated as $\text{Current Period Amount} - \text{Base Period Amount}$.

Relative Change

The percentage change in a value, calculated as $\frac{\text{Dollar Change}}{\text{Base Period Amount}} \times 100$.

USALI

Stands for Uniform System of Accounts for the Lodging Industry; the standard accounting system used globally to classify, organize, and present financial operations in the hotel industry.

Responsibility Accounting

A system of reporting financial results where revenues and controllable expenses are divided and assigned to specific operational departments (profit centers) or service departments.

Net Revenue

Gross revenue minus allowances (discounts or price reductions granted to guests due to service issues).

Direct Operating Expenses

Operating expenses tied directly to revenue departments, consisting of Cost of Sales, Labor Costs & Related Expenses, and Other Operating Expenses.

Capacity Costs

Also called Fixed Charges; non-operating expenditures tied to physical plant facilities and ownership decisions, such as Rent, Property Taxes, Insurance, and Depreciation.

Gross Operating Profit (GOP)

A USALI profit level calculated as $\text{Total Departmental Profit} - \text{Total Undistributed Operating Expenses}$.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization.

Net Book Value (NBV)

Calculated as $\text{Original Cost} - \text{Accumulated Depreciation}$.

Current Ratio

A liquidity ratio that measures short-term ability to pay current bills, calculated as $\frac{\text{Current Assets}}{\text{Current Liabilities}}$.

Profit Margin

Measures overall managerial efficiency in generating sales and controlling expenses, calculated as $\frac{\text{Net Income}}{\text{Total Revenue}} \times 100$.

Operating Efficiency Ratio

A measure of operational management performance that isolates GOP from non-controllable fixed charges, calculated as $\frac{\text{GOP}}{\text{Total Revenue}} \times 100$.

Paid Occupancy Percentage

The proportion of available rooms actually sold to paying guests, calculated as $\frac{\text{Rooms Occupied by Paying Guests}}{\text{Rooms Available for Sale}} \times 100$.

Average Daily Rate (ADR)

The average rental price realized per paid room sold, calculated as $\frac{\text{Total Rooms Revenue}}{\text{Number of Rooms Sold}}$.

RevPAR

Revenue per Available Room; a metric combining ADR and Occupancy calculated as $\text{ADR} \times \text{Occupancy \%}$ or $\frac{\text{Total Rooms Revenue}}{\text{Total Available Rooms}}$.

Fixed Costs

Costs that remain constant in total within a relevant range of activity regardless of changes in sales volume.

Variable Costs

Costs that change in total directly and proportionately with changes in sales volume, while remaining constant per unit.

Step Costs

Costs that remain fixed within a specific range but increase to a higher fixed amount once activity moves beyond that range.

Mixed Costs

Costs containing both a fixed element independent of sales and a variable element that changes directly with sales volume (e.g., utility bills).

High/Low Two-Point Method

The least accurate method to split mixed costs because it relies only on the highest and lowest activity periods, ignoring other data points.

Regression Analysis

The most accurate statistical method to split mixed costs by using the least-squares method to evaluate all data points simultaneously.

Breakeven Point

The level of sales activity (in units or dollars) where Total Revenues equal Total Costs, resulting in a Net Income of $0$.

Contribution Margin (CM)

The amount remaining from sales revenue after variable costs are covered, calculated per unit as $\text{Selling Price} - \text{Variable Cost}$.

Operating Leverage

The extent to which a business relies on fixed costs relative to variable costs in its cost structure.

Margin of Safety

The excess of actual or budgeted sales over sales at the breakeven point, measuring how much sales can fall before a loss is incurred.

Sensitivity Analysis

A "what-if" technique used in CVP analysis to test how changes in key variables like price or fixed costs impact profit.