CHAE Review. This is a complete review of the two volume text book, Certified Hospitality Accountant Executive Study Guide, as published by The Educational Institute of AH&LA. These materials represent a significant part of the CHAE examination. .
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two volume text book,
Certified Hospitality Accountant Executive Study Guide,
as published by
The Educational Institute of AH&LA.
These materials represent a significant part of the
Were Prepared By:
Stephen M. LeBruto, Ed.D, CPA, CHAE
HFTP Professor of Hospitality Financial Management and Technology
Associate Dean and Professor
Rosen College of Hospitality Management
University of Central Florida
There are a total of 200 multiple choice questions divided into five sections:
IV. Tax and Law (18%)
Basic partnership & corporate tax
Sales taxes and property taxes
Basic innkeepers law
Wage and hour
Basics of contracts
V. Operations (14%)
Purchasing cycles and controls
I. Basic Accounting (25%)
General journal entries
II. Managerial Accounting (25%)
III. Asset Management (18%)
Cash management and analysis
Accounting is a Profession
Methods of Recording
Expanded Fundamental Accounting Equation
Debits and Credits
Owners’ Equity Accounts
Recording Asset, Liability and Equity Changes
RecordingRevenue and Expense Changes
Recording Changes in Owners’ Withdrawal Account
Compound Journal Entries
What Are Adjusting Entries?
Why Adjusting Entries Are Needed?
Cash Vs Accrual Basis
Credit Prepaid Insurance (asset) $1,000
( Cost minus Salvage Value )
periods of useful life
Failure to Prepare Adjusting Entries
Advantages of Corporations
Disadvantages of Corporations
Noncurrent Assets in one year or normal operating cycle
Other Assets - Deferred Charges, Security Deposits in one year or normal operating cycle
Long Term Liabilities in one year or normal operating cycle
Owners’ Equity in one year or normal operating cycle
Balance Sheet Analysis in one year or normal operating cycle
Balance Sheet Analysis in one year or normal operating cycle
Base year comparisons
Balance Sheet Limitations
The Income Statement in one year or normal operating cycle
Elements of Income Statement in one year or normal operating cycle
Statement of Cash Flows in one year or normal operating cycle
Use and Purpose of The Statement of Cash Flows in one year or normal operating cycle
Determine Change in Cash Account - The “Answer” in one year or normal operating cycle
Summarize Operating Activities
Summarize Investing Activities
Summarize Financing Activities
Schedule of Non-cash Investing and Financing Activities
Present the Statement of Cash Flows
Operating Activities - Direct Method in one year or normal operating cycle
Operating Activities - Indirect Method in one year or normal operating cycle
Net Cash Flows From Investing Activities in one year or normal operating cycle
Part II - Managerial Accounting in one year or normal operating cycle
Financial Vs Managerial Accounting
The Hospitality Industry in one year or normal operating cycle
Hotel Revenue in one year or normal operating cycle
Hotel Costs and Expenses
Cost Terminology in one year or normal operating cycle
Determination of Mixed Cost Elements in one year or normal operating cycle
Cost Allocation in one year or normal operating cycle
Analysis After Allocation
Cost-Volume-Profit Analysis : Assumptions in one year or normal operating cycle
CVP Basic Formula in one year or normal operating cycle
I = Net Income
0 = SX - VX – F
Break-Even Formula Variations
X = F / (S - V)
F = SX - VX
S = (F / X) + V
V = S - (F / X)
Contribution Margin period?
WCMR = (Total Revenue - Total Variable Costs)
Margin of Safety period?
Providing for Income Taxes period?
Balance (EBT) = $100
Tax rate 25% = $100 X 25% = $25
Adjusted balance (NI) = $100 - $25 = $75
To find balance, given net income:
balance = 75 / (1-.25) = 100
Price Elasticity of Demand period?
Informal Pricing Methods period?
Mark Up Approaches period?
Rooms Pricing Traditional Method period?
Rooms Pricing Hubbart Formula period?
ADR to Single and Double Rates period?
(Doubles Sold * (Single Rate + Price Differential)) = Average Rate * Rooms Sold
Yield Management period?
Why Yield Management? period?
Benefits from Yield Management period?
Menu Engineering period?
(100% / Number of Items) * (70%)
Item is popular if individual item’s sales mix exceeds 70% of the Average Popularity
Average Popularity = (100% / 10) * (70%) = 7%
ItemPopularity = If individual sales mix is > 7%, Popular
1. Sales – Food cost = item’s profitability or contribution margin
2. Total gross profit or total contribution margin =
Item’s profitability x number of items sold
3. Weighted Average Contribution Margin = Total Contribution Margin
Number of items sold
DetermineItem Profitability Label
If Item’s profitability is > WACM - “High”
If Item’s profitability is < WACM - “Low”
AICPA Objectives of Internal Control
Types of Internal Control period?
Internal Control Basics
Classification of Controls period?
( Use of locks, segregation of duties)
Documenting Internal Control period?
Part III- Asset Management period?
Accounting Principles Applied
Periodic System period?
Perpetual System period?
Basic Food Cost Calculation period?
= Goods Available for Sale
- Closing Inventory
= Cost of Goods Consumed
- Goods Used Internally (Adjustments)
= Cost of Goods Sold
Physical Inventory period?
Value of the Inventory period?
First In First Out period?
Last In First Out
Inventory Example period?
Date Quant Price Extension
7/01/07 0 0.00
7/02/07 500 2.31 1,155.00
7/05/07 600 2.15 1,290.00
7/10/07 400 2.54 1,016.00
7/14/07 800 2.41 1,928.00
7/16/07 700 2.25 1,575.00
7/22/07 500 2.33 1,165.00
7/25/07 300 2.01 603.00
7/29/07 900 2.47 2,223.00
7/30/07 400 2.12 848.00
7/31/07 200 2.33 466.00
Total 5,300 12,269.00
200 @ 2.33 = 466.00 500 @ 2.31 = 1,155.00
400 @ 2.12 = 848.00 400 @ 2.15 = 860.00
300 @ 2.47 = 741.00
Total 900 = $2,055 Total = 900 = 2,015.00
Valuation Under Weighted Average
Weighted Average Price = 12,269 / 5,300
WAP = 2.31
Total = 900 * 2.31 = 2,079
Most Recent Price
900 @ 2.33 = 2,097
Must be told which deliveries comprise ending inventory
Assume 300 From 7/25; 200 From 7/29; and 400 From 7/30
300 @ 2.01 = 603.00
200 @ 2.47 = 494.00
400 @ 2.12 = 848.00
Total = $1,945
Retail Method period?
Gross Profit Method
Property and Equipment
Capital Leases period?
Buying a Business
Book Depreciation period?
1. Straight Line 2. Units of Production
3 Declining Balance 4. Sum of the Years Digits
Straight Line Depreciation
Units of Production
Declining Balance period?
Sum of the Years Digits
Financial vs. Tax Reporting period?
Depreciation is period?Estimated
Intangible Assets period?
Current Asset Management period?
Working Capital Components
Inventory Management period?
Net Income - Summarizes Revenues and Expenses
Cash Flow - Analyzes Cash Account From Receipts and Disbursement
Other Cash Management period?
Purchase Discount period?
Other Issues period?
Time Value of Money period?
Present Value of a Future Amount
Capital Budgeting Terms period?
Accounting Rate of Return Model period?
Payback Method period?
Payback and ARR Flaws
Net Present Value Model period?
Internal Rate of Return
Capital Rationing period?
Lease Accounting period?
Advantages of Leases
Disadvantages of Leasing period?
Provisions of Leases
Operating Leases period?
FASB Capitalization Criteria period?
If the Lease Meets Any One of the Following Criteria, It Must Be Treated As a Capitalized Lease - Not As an Operating Lease
Accounting for Operating Leases period?
Accounting for Capital Leases
Other Lease Information period?
Effects of Leases on Ratios period?
Asset Turnover Ratio
Return on Assets
Tax Classifications of Clubs
Criteria For Tax Exemption period?
Definition of Club
Americans With Disabilities Act period?
The Hotelkeeper and the period?
Law of Contracts
Elements of a Contract - Agreement
- Offer and Acceptance - Mistaken Offer
- Termination of Offer - Counteroffer
- Consideration - Legal Subject Matter
- Legal Capacity
Statute of Frauds
Voidable Contracts period?
Statutes of Limitations period?
Fair Labor Standards Act
What the FLSA Does Not Require period?
Minimum Wage period?
Exceptions to FLSA period?
Tip Vs Service Charge period?
Employee Declarations of Tips
Tip Reporting Alternative Commitment (TRAC)
Tip Allocation period?
Rest Periods period?
Other Tip Issues period?
Cannot Be Mandatory
The Family and Medical Leave Act period?
Civil Rights Act of 1964 period?
Mrs. Murphy Tourist Homes
Remedies Under Federal Law for period?
Violation of Civil Rights Act of 1964
Expanded Civil Rights Act of 1964
Sexual Harassment period?
What Is Sexual Harassment? period?
and Workers’ Compensation
Federal Unemployment Tax Act
Other Issues period?
Federal Withholding Taxes
Part V - Hospitality Operations period?
Accounting for Payroll Related Liabilities: Payroll Control
Payroll Records period?
Journal Entry to Record Payroll period?
Recording Payroll Taxes
Ratio Analysis period?
Classes of Ratios period?
Basic Rule period?
When Computing a Ratio (one number divided by another) and One of the Numbers Comes From the Balance Sheet and the Other Number Comes From the Income Statement or the Statement of Cash Flows, the balance sheet number needs to be an average of the first day of the period and the last day of the period which is represented by the income statement of statement of cash flows
Liquidity Ratios period?
Solvency Ratios period?
Profitability Ratios period?
Operating Ratios period?
Limitations of Ratio Analysis period?
Operations Budgeting period?
Benefits of Budgeting period?
Disadvantages of Budgeting
Budget Cycle period?
Budgetary Control period?
Variance Analysis - Sales
Variance Analysis - Variable Labor
Antitrust Laws and Hotels period?
Purpose of Antitrust Laws
Penalties for Violation period?
Understanding Franchising period?
Uniform Franchise Offering Circular
Services Offered By Franchisors period?
Development Assistance Marketing Offices
More on Fees Reservation Fees
Training and Guidance Franchise Agreements
Centralized Purchasing Referrals Between Properties
Term - 10 to 20 Years Provide Proprietary Information
Franchise (Royalty) Fees Site Selection and Market Analysis
Provision of Plans and Specifications Proven Modes of Operation
Continuing Fee Assessment - % Royalty Fee is For Use of Name
Property Inspection/Evaluation Publicity and Promotion Assistance
Centralized Reservation System Initial Application Fee
Initial Fee - Flat Amount Plus Amount per Room
Usually Advertising and Reservation Fees Just Cover the Cost
Hotel Has A Duty To Receive Guests
Civil Rights Act of 1964 Guests
Private Club Exception From Civil Rights Act of 1964
Minors in a Hotel Guests
State Civil Rights Laws
Guest Reservations Guests
Agreement for a Room Is a Contract
From No Shows?
The Guest’s Right to Privacy Guests
Front Office Tips
The Hotel’s Right to Evict a Guest, Tenant, Restaurant Patron, or Others
Guest or Tenant
Evicting a Tenant
When a Hotel Can Evict a Guest Patron, or Others
Improper Evictions - Can Lead to Punitive Damages
Copyright Laws for Music, Television, Video, and Movies Patron, or Others
Exemptions Under Copyright Law of 1976 Patron, or Others
The New 10 Patron, or Othersth EditionUniform System of Accounts for the Lodging Industry
The End! Edition
Good Luck in the Exam!