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Accounting & Financial Management. Introduction to Managerial Accounting. Larry Ross, Ph.D. Barnett School of Business & Free Enterprise Florida Southern College @ Lakeland, FL. Learning Objectives. At the end of this session you will be able to: Relate accounting’s role to club management

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accounting financial management

Accounting & Financial Management

Introduction to Managerial Accounting

Larry Ross, Ph.D.

Barnett School of Business & Free Enterprise

Florida Southern College @ Lakeland, FL

learning objectives
Learning Objectives

At the end of this session you will be able to:

  • Relate accounting’s role to club management
  • Determine the financial “health” of the club
  • Assess the club’s level of financial performance
  • Apply the CVP model as a decision-making tool
  • Compare and contrast the advantages and disadvantages of leasing

BMI II ~ Managerial Accounting

sources of information
Sources of Information
  • Accounting for Club Operations Ch. 2,5,6,9 & 11
  • Contemporary Club Management 3rd ed. Ch. 11
  • Uniform System of Financial Reporting for Clubs
  • White Papers on Club Management, VIII:16

BMI II ~ Managerial Accounting

4 major topics
4 Major Topics
  • Key Accounting Terms & Principles
  • Financial analysis using Ratios
  • Decision-making with CVP Analysis
  • Impact of the decision to lease

BMI II ~ Managerial Accounting

the accounting function
The Accounting Function
  • Information-oriented
    • External Users
    • Internal Uses
  • Support Function

BMI II ~ Managerial Accounting

6 branches of accounting
6 Branches of Accounting
  • Financial Accounting
  • Cost Accounting
  • Managerial Accounting
  • Tax Accounting
  • Auditing
  • Accounting Info Systems

BMI II ~ Managerial Accounting

generally accepted accounting principles gaap
Generally Accepted Accounting Principles (GAAP)
  • Cost Principle
  • Going Concern
  • Unit of Measurement
  • Objective Evidence
  • Full Disclosure

BMI II ~ Managerial Accounting

generally accepted accounting principles gaap1
Generally Accepted Accounting Principles (GAAP)
  • Consistency
  • Matching
  • Conservatism
  • Materiality
  • Cash Basis vs. Accrual

BMI II ~ Managerial Accounting

accounting basics
Accounting Basics

Fundamental Accounting Equation (A = L + ME)

  • Assets
  • Liabilities
  • Member’s Equity
    • Permanent
    • Temporary

BMI II ~ Managerial Accounting

typical asset accounts
Typical ASSET Accounts
  • Cash
  • Accounts Receivable
  • Food & Beverage Inventory
  • Prepaid Expenses
  • Fixed Assets (Building & Equipment)

BMI II ~ Managerial Accounting

typical liability accounts
Typical Liability Accounts
  • Accounts Payable
  • Accrued Expenses
  • Unearned Income
  • Note Payable
  • Mortgage Payable

BMI II ~ Managerial Accounting

typical equity accounts
Typical Equity Accounts
  • Capital Stock
  • Designated net Assets
  • Undesignated net Assets

BMI II ~ Managerial Accounting

typical revenue accounts
Typical Revenue Accounts
  • Membership dues
  • Initiation fees
  • Food revenue
  • Beverage revenue
  • Rentals and other revenue

BMI II ~ Managerial Accounting

typical expense accounts
Typical Expense Accounts
  • Food cost
  • Beverage cost
  • Entertainment expense
  • Administrative & general
  • Energy costs

BMI II ~ Managerial Accounting

the balance sheet

The Balance Sheet

Also called the Statement of Financial Position

statement of financial position
Statement of Financial Position
  • “Snapshot” of account balances
  • A = L + OE
  • Balanced via the Proprietorship Accounts
  • Indicates financial “health”

BMI II ~ Managerial Accounting

what can we learn from the statement of financial position
What can We Learn from the Statement of Financial Position
  • Horizontal Analysis
  • Vertical Analysis
  • Base-year Comparisons
  • Ratio Analysis

BMI II ~ Managerial Accounting

the income statement

The Income Statement

Also called the Statement of Activities

statement of activities
Statement of Activities
  • “Video” of financial activity
  • Profit = Revenue – Expenses
  • Closed-out to Member’s Equity
  • Indicates financial performance

BMI II ~ Managerial Accounting

what can we learn from the statement of activities
What can We Learn from the Statement of Activities
  • Departmental Statements
  • Operating Statistics
    • Multi-year trends
    • Geographic & size divisions
  • Analysis of Income Statement

BMI II ~ Managerial Accounting

statement of cash flows

Statement of Cash Flows

“…how much cash was provided from operations, how much from debt, how much came from memberships, and how much went to purchase assets.”

classification of cash flows
Classification of Cash Flows
  • Operating Activities
  • Investing Activities
  • Financing Activities

BMI II ~ Managerial Accounting

practice problem 1

Practice Problem #1

Evaluate the financial health and the financial performance of a private club (refer to handout)

problem 1 discussion
Problem #1 Discussion
  • Is the WWCC financially “healthy”?
  • How would you rate the 2011 financial results of the WWCC?
  • What is the biggest financial challenge facing the WWCC?

BMI II ~ Managerial Accounting

ratio analysis

Ratio Analysis

“. . .interpret the reported facts to discover aspects. . . that could otherwise go unnoticed.”

ratio analysis1
Ratio Analysis

Standards of Comparison

  • Historical Past
  • Industry Averages
  • Budget

BMI II ~ Managerial Accounting

ratio analysis2
Ratio Analysis

3 Different Users – different uses

  • Creditors
    • Secured
    • Unsecured
  • Owners/Members
  • Managers

BMI II ~ Managerial Accounting

5 classes of ratios
5 Classes of Ratios
  • Liquidity: short-term
  • Solvency: long-term
  • Activity: productivity
  • Profitability: conversion
  • Operating: industry-specific

BMI II ~ Managerial Accounting

ratio analysis liquidity
Ratio Analysis: Liquidity
  • Current Ratio
  • Acid-test Ratio
  • Accounts Receivable Turnover
  • Average Collection Period

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ratio analysis solvency
Ratio Analysis: Solvency
  • Solvency Ratio
  • Debt-to-Equity
  • Number times Interest Earned
  • Fixed Charge Coverage

BMI II ~ Managerial Accounting

ratio analysis activity
Ratio Analysis: Activity
  • Inventory Turnover
  • Fixed Asset Turnover
  • Total Asset Turnover
  • Paid Occupancy
  • Rounds of Golf

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ratio analysis profitability
Ratio Analysis: Profitability
  • Gross Profit Margin
  • Operating Efficiency Ratio
  • Return on Assets
  • Return on Member’s Equity

BMI II ~ Managerial Accounting

ratio analysis operating
Ratio Analysis: Operating
  • Sales Mix
  • Average Food Check
  • Food Cost Percent
  • Beverage Cost Percent
  • Labor Cost Percent

BMI II ~ Managerial Accounting

practice problem 2

Practice Problem #2

Analyze the financial health and financial performance of the Whistling Wind Country Club using all 5 classes of ratios.

problem 2 discussion
Problem #2 Discussion

Grade the WWCC in each area

  • Liquidity
  • Solvency
  • Activity
  • Profitability
  • Operating

BMI II ~ Managerial Accounting

applying cost concepts

Applying Cost Concepts

“. . . Something of value given up in order to achieve a specific outcome.”

cost volume profit analysis
Cost/Volume/Profit Analysis

C/V/P is an expression of the relationship between various costs, sales volume, and profit.

BMI II ~ Managerial Accounting

c v p assumptions
C/V/P Assumptions
  • Fixed costs remain fixed.
  • Variable costs vary in direct proportion to volume.
  • Revenues vary in direct proportion to volume.
  • Mixed costs can be divided.
  • Joint costs can be allocated.
  • Only considers quantitative factors.

BMI II ~ Managerial Accounting

c v p relationships
C/V/P Relationships

$

  • Revenue
  • Total Cost
  • Variable Cost
  • Fixed Cost

Volume

BMI II ~ Managerial Accounting

c v p equations
C/V/P Equations
  • Income = Revenue - Expenses I = R - E
  • Revenue = Price * Quantity R = P * Q
  • Expenses = Variable Cost + Fixed E = (V* Q) + F
  • I = (P*Q) - [(V*Q) + F)]

BMI II ~ Managerial Accounting

c v p equations1
C/V/P Equations
  • I = (P*Q) - [(V*Q) + F)]
  • I = Q*(P-V) - F
  • IBE + F = Q*CM
  • Q = F CM

BMI II ~ Managerial Accounting

practice problem 3

Practice Problem #3

Analyze the decision to build a Wii Fitness Facility at the Whistling Wind Country Club

problem 3 discussion
Problem #3 Discussion
  • How many new fitness members are necessary for the fitness facility to break even?
  • If you could outsource the salaried supervisor to a “Wii Pro” who charges for lessons and therefore lower the fixed costs by $40,000, how many members would be necessary (all other things stay the same) to break even?
  • If the board requires a 12% return on capital investments, how many new fitness facility memberships are necessary?
  • A study determines that at most 420 new members would join, what would the price of membership need to be?

BMI II ~ Managerial Accounting

lease accounting

Lease Accounting

“. . .an agreement conveying the right to use resources for specified purposes for a limited time.”

advantages of leases
Advantages of Leases
  • Conserve working capital
  • Less “red tape”
  • Easier to change equipment
  • Less impact on financial ratios
  • Reduces need for capital budget

BMI II ~ Managerial Accounting

disadvantages of leases
Disadvantages of Leases
  • No beneficial residual value
  • Higher cost
  • Additional costs of early termination

BMI II ~ Managerial Accounting

classification of leases
Classification of Leases
  • Operating Leases
  • Capital Leases
    • Title transfer provision
    • Bargain purchase provision
    • Economic life provision
    • Value recovery provision

BMI II ~ Managerial Accounting

practice test questions

Practice Test Questions

20 items from the accounting topics that were covered. . .