CHAPTER 1 - A BRIEF REVIEW OF FINANCIAL STATEMENTS

Question 1

account format

Answer 1

A possible arrangement of a balance sheet that lists the asset
accounts on the left side of the page and the liability and owners’ equity accounts
on the right side.

Question 2

accrual basis accounting

Answer 2

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.

Question 3

additional paid

Answer 3

in capital-Payments for capital stock in excess of the stated and/
or par value of the capital stock. Also called paid-in capital in excess of par.

Question 4

balance sheet

Answer 4

Statement of the financial position of the hospitality establishment
at a given date, giving the account balances for assets, liabilities, and ownership
equity.

Question 5

base-year comparison

Answer 5

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 percent) and comparing all subsequent periods with the base.

Question 6

capacity costs

Answer 6

Fixed charges relating to the physical plant or the capacity to provide
goods and services to guests.

Question 7

capital stock

Answer 7

Shares of ownership of a corporation.

Question 8

cash equivalents

Answer 8

Short-term, highly liquid investments such as U.S. Treasury

bills and money market accounts.

Question 9

cash inflows

Answer 9

Cash received by a hospitality organization during an accounting
period.

Question 10

cash outflows

Answer 10

Cash disbursed by a hospitality organization during an accounting
period.

Question 11

common stock

Answer 11

Capital stock of a corporation that generally allows its holders to
have voting rights.

Question 12

common-size statements

Answer 12

Financial statements used in vertical analysis whose

information has been reduced to percentages to facilitate comparisons.

Question 13

comparative statements

Answer 13

The horizontal analysis of financial statements from the
current and previous periods in terms of both absolute and relative variances for
each line item.

Question 14

consolidated financial statements

Answer 14

The combined financial statements of a parent

corporation and its subsidiary corporations.

Question 15

current assets

Answer 15

Resources of cash and items that will be converted to cash or used
in generating income within a year through normal business operations.

Question 16

current liabilities

Answer 16

Obligations that are due within a year.

Question 17

current ratio

Answer 17

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.

Question 18

daily report of operations

Answer 18

A frequent major report prepared for management.

Question 19

departmental income statements

Answer 19

Supplements to the income statement that
provide management with detailed financial information for each operating
department and service center; also referred to as schedules.

Question 20

direct method

Answer 20

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.

Question 21

expenses

Answer 21

Costs incurred in providing the goods and services offered.

Question 22

fluctuation explanation

Answer 22

A document providing detail not available on the balance

sheet that explains drastic changes in balance sheet items.

Question 23

gain

Answer 23

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.

Question 24

goodwill

Answer 24

The excess of a hospitality operation’s purchase price over the dollars
assigned to its individual assets.

Question 25

horizontal analysis

Answer 25

Comparing financial statements for two or more accounting

periods in terms of both absolute and relative variances for each line item.

Question 26

income statement

Answer 26

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.

Question 27

indirect method

Answer 27

One of two methods for converting net income to net cash flow
from operations. This method starts with net income and then adjusts for non-cash
items included on the income statement.

Question 28

liquidity

Answer 28

The ability of an operation to meet its short-term (current) obligations
by maintaining sufficient cash and/or investments easily convertible to cash.

Question 29

long-term liabilities

Answer 29

Obligations at the balance sheet date which are expected to
be paid beyond the next 12 months, or if paid in the next year, they will be paid
from restricted funds; also called non-current liabilities.

Question 30

loss

Answer 30

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.

Question 31

non-current receivables

Answer 31

Accounts and notes receivable that are not expected to

be collected within one year from the balance sheet date.

Question 32

owners’ equity

Answer 32

Financial interest of the owners of a business; assets minus

liabilities.

Question 33

preferred stock

Answer 33

Stock issued by a corporation that provides preferential treatment
on dividends, but may not give the stockholder voting rights.

Question 34

report format

Answer 34

A possible arrangement of a balance sheet that lists assets first,
followed by liabilities and owners’ equity.

Question 35

responsibility accounting

Answer 35

The organization of accounting information (as on
an income statement) that focuses attention on departmental results such as the
rooms and food departments.

Question 36

restricted cash

Answer 36

Cash that has been deposited in separate accounts, often for the
purpose of retiring long-term debt.

Question 37

retained earnings

Answer 37

An account for recording undistributed earnings of a corporation.

Question 38

revenue

Answer 38

The amount charged to customers in exchange for goods and services.

Question 39

schedules

Answer 39

See departmental income statements.

Question 40

statement of cash flows

Answer 40

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.

Question 41

summary income statement

Answer 41

An income statement intended for external users

that lacks the detail of supporting schedules.

Question 42

treasury stock

Answer 42

Capital stock of a corporation that the corporation has repurchased
for future issuance.

Question 43

uniform systems of accounts

Answer 43

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.

Question 44

vertical analysis

Answer 44

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.

Question 45

working capital

Answer 45

Current assets minus current liabilities.