Finance Exam Session 1-6: Hospitality Accounting

Comprehensive vocabulary flashcards based on hospitality accounting lecture notes, covering financial terminology, inventory management, and technical accounting principles.

Accounting

The function that collects and processes financial data to provide owners and managers with reliable information for making smart economic decisions.

Average check

A crucial operational indicator for food & beverage used to analyze the revenue per guest.

Fixed costs

Costs that are independent of the number of guests and always continue, such as rent or insurance.

Bookkeeping

The initial phase of financial administration that involves systematically recording daily business transactions and maintaining accounting records.

Financial accounting

A branch of accounting that focuses on recording past transactions to prepare formal financial reports for external parties.

Cost accounting

A branch of accounting focused on recording, allocating, and reporting current and future costs per department, function, or product.

Managerial accounting

The practice of providing detailed financial information internally to support management decisions and compare performance against budgets.

Auditing

Checking and evaluating the financial administration and internal control systems to provide an independent opinion on the reliability of financial statements.

Account payable

A debt that arises when a company purchases goods or services on account and promises to pay for them later.

Account receivable

A claim that arises when a guest purchases on account and promises to pay later.

Promissory note

A formal, written promise to pay a specific amount of money at a future date.

Accounting Equation

The foundational formula of the balance sheet: $Assets = Liabilities + Equity$.

Assets

Everything of value owned by the business, such as cash, inventory, and buildings.

Liabilities

The claims of external creditors or outsiders on the assets of the company.

Equity

The remaining ownership interest or residual claim of the owners in the assets after all liabilities have been deducted.

Chart of accounts

The official and authorized list of names of all accounts that a specific hotel or restaurant business may use in its accounting.

Statement of Income

A financial statement that shows revenues and expenses over a certain period to determine whether a profit or loss was made.

Cost of Sales

Also known as Cost of Goods Sold (COGS), these are the costs of ingredients directly used to prepare the food and beverages sold.

Gross Profit

The result of the formula: $Gross Profit = Revenue - Cost of Sales$.

Income Before Fixed Charges and Income Taxes

A KPI for hospitality managers that measures operational success and management efficiency before fixed building and financing costs; calculated as: $Gross Profit - Total Operating Expenses$.

Fixed Charges

Costs that remain virtually constant regardless of sales volume, including rent, property taxes, insurance, interest, and depreciation and amortization.

Perpetual Inventory System

An inventory tracking system that operates in real-time, recording every delivery, storage, and issuance immediately.

Periodic Inventory System

A system where inventory and Cost of Sales are calculated once per period via a physical inventory count rather than tracked continuously.

Food Used

The unadjusted cost of food determined by the formula: $Opening Food Inventory + Food Purchases - Ending Food Inventory$.

Net Cost of Food Sales

The final cost calculated by adjusting Food Used: $Food Used - Employee meals - Complementary meals - Transfers out + Transfers in$.

Matching principle

The accounting principle stating that costs must be matched exactly with the revenue they generated in that same period.

Depreciation

The systematic allocation of the acquisition cost of a tangible long-lived fixed asset over its expected economic useful life.

Salvage value

The estimated remaining or trade-in value of an asset at the end of its useful life.

Book value

The remaining value of an asset on the balance sheet: $Book Value = Cost of the Asset - Accumulated Depreciation$.

Straight-Line Depreciation Method

A method to calculate equal annual depreciation: $\text{Annual Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}$.

Going-concern principle

The assumption that a company will continue to exist in the foreseeable future, justifying the valuation of assets at historical cost.

Historical cost principle

The principle that assets are recorded on the balance sheet for the amount originally paid for them.

Liquidity

A company's ability to meet its short-term financial obligations.

Solvency

A company's ability to meet all financial obligations in the long term.

Allowance for Doubtful Accounts

A contra-asset account representing an estimate of the portion of accounts receivable that will likely never be paid.

Goodwill

The excess value paid during a company acquisition: $Goodwill = Purchase Price - FMV of Net Assets$.

Accrued Expenses

Costs incurred in the current period but for which the invoice or payment will only occur in the next period.

Additional Paid-In Capital (APIC)

The amount shareholders paid for their shares in excess of the nominal par value.

Treasury Stock

Shares that a company has repurchased from its own shareholders, which have no voting rights and receive no dividends.

Accounting Cycle

A sequence of 10 steps used to record, process, and report financial transactions, starting with business transactions and ending with a post-closing trial balance.

Debit (Dr)

An entry recorded on the left side of a T-account; used to increase asset and expense accounts.

Credit (Cr)

An entry recorded on the right side of a T-account; used to increase liability, equity, and revenue accounts.

Contra account

An account that has an opposite effect on its main category, used to reduce gross values to net values on financial statements.

Trial Balance

A list prepared to check mathematical accuracy by ensuring that the sum of all debit balances equals the sum of all credit balances.