Question

Explain the three most common financial statements and provide an example of how they can be used in the hospitality industry

Answer 1

A complete set of financial statements is used to give readers an overview of the financial results and condition of a business. The financial statements are comprised of four basic reports, which are as follows:

Income statement. Presents the revenues, expenses, and profits/losses generated during the reporting period. This is usually considered the most important of the financial statements, since it presents the operating results of an entity.
Balance sheet. Presents the assets, liabilities, and equity of the entity as of the reporting date. Thus, the information presented is as of a specific point in time. The report format is structured so that the total of all assets equals the total of all liabilities and equity (known as the accounting equation). This is typically considered the second most important financial statement, since it provides information about the liquidity and capitalization of an organization.
Statement of cash flows. Presents the cash inflows and outflows that occurred during the reporting period. This can provide a useful comparison to the income statement, especially when the amount of profit or loss reported does not reflect the cash flows experienced by the business. This statement may be presented when issuing financial statements to outside parties.The Profit and Loss
(P&L) Statement is the financial statement that hospitality managers need to understand
completely. It is the financial statement that they will use to measure the financial performance
of their departments and to monitor and improve the daily operations of their
departments. The P&L provides a way for managers to measure the financial performance
of their departments by comparing actual monthly operations to the budget established
for the month, to last year’s monthly performance, to the previous month’s performance,
and to the most recent forecast.
The P&L is the financial report that involves hotel managers in all four steps of the
Financial Management Cycle. First, the managers operate the departments that provide
the products and services to customers that produce the numbers—revenues, expenses,
and profits. Second, the managers ensure that the numbers that are submitted to accounting
are accurate and consistent so that the financial reports prepared by accounting are
accurate and useful. Third, hotel managers must be able to analyze and discuss the
numbers to determine how well hotel operations are meeting established goals and
budgets. This includes providing critiques and details of operations that can assist them
and accounting managers in determining the best or next course of action to take regarding
operating their departments. Fourth, hotel managers are the ones responsible for
applying the numbers back to operations by implementing changes for improvement or
corrections to solve problems.
The P&L also provides information that is connected to both the Balance Sheet (Assets
and Liabilities [or A&L] Statement) and the Statement of Cash Flow. Ahospitality manager
who understands these relationships will be able to use these financial statements more
effectively in operating their departmentsHotel Consolidated P&L Statements
The Consolidated P&L for a hotel is a summary P&L that lists the department totals for
revenues, profits, and expenses. Only the department totals for revenues, profits, and
expenses are included in the Consolidated P&L. It is a true summary report showing the
important financial results for each department in the hotel.
Revenue and Profit Centers
Both of these names refer to operating departments that produce revenues (sales) and
profits. The terms revenue and sales are interchangeable. The terms revenue centers and
profit centers are also interchangeable. Specifically, these departments provide products
and services to the customers who pay for these services. Employees record the sales on
cash registers or point-of-sale (POS) computer systems. That is why these operating
departments are referred to as revenue centers. They receive and record revenues from
customers. Examples of revenue centers in full-service hotels are the rooms department,
restaurants, lounges, catering and banquets, the gift shop, and telephone departments.
Resorts include these same revenue centers, as well as golf, spas, tennis, and recreation
revenue centers.