Year Two Chapter 9 Standard Accounting Practices
Bellwork You are investigating a possible restaurant to purchase. What would you like to know or be shown to help you make that decision? • Take five minutes to discuss with the group at your table. • Come up with very specific needs. Be ready to report to the class your answers.
9.1 Vocabulary • Accounting • A system that helps businesses keep track of all their financial information in an organized way. • Transaction • When money is exchanged for business reasons; needs to be recorded in accounting records. • Loss • When a business spends more money to pay its costs than it receives in revenue. • Profit • The money left when costs have been subtracted from revenue.
What is the cost of sales and how is it figured? (page 382) • Cost is the price paid for goods or services when the goods are received or the services are provided. • Direct cost is an expense that is the responsibility of a specific department. • Indirect costs are expenses that are not easily charged to any one specific department.
Think about this If you share an apartment with a roommate, but you only make 10% of the long-distance phone calls, you should pay only 10% of the long-distance phone bill. You benefit from having the long-distance service but your usage is much less than your roommate’s. You should pay your fair share, but it may not be 50%.
Follow Through Alexander’s Restaurant began December with $4,765 worth of products in its food inventory, ended the month with $2,690 worth of products in inventory, and had receipts showing a total of $4,950 in purchases. Determine the operation’s cost of sales for December. Bonus question: What is the opening inventory for January?
Answer: • $4,765 + $4950 - $2,690 = $7,025 • Bonus: $2,690
Group discussion • Define direct and indirect costs. (pg382-3) • How are these costs distributed in a large scale operation? • Be prepared to identify your answer.
Calculate-Revenue and Costs • Louie’s Rib Barn started the month with $12,500 worth of food in its food inventory. At the end of the month they purchased $36,800 in food. Louie’s total costs for the entire year were $635,500. In addition to its dining room revenue, they also have delivery and banquet revenues.
Figure Louie’s monthly Cost of Sales • Starting Inventory-$12,500 • Ending Inventory-$10,200 • Food purchases-$36,800
Louie’s Yearly Revenue DepartmentRevenuePercentage Dining room $445,020 Delivery 230,000 Banquet 276,900 Total Calculate each of the three department’s Percentage of total revenue ( Divide the total revenue into the department total)
Louie’s Yearly Revenue Answer DepartmentRevenuePercentage Dining room $445,020 47% Delivery 230,000 24% Banquet 276,900 29% Total $951,920 100%
Did Louie’s Rib Barn experience a profit or loss? • Yearly Revenue $951,920 • Yearly food cost $635,500 What was the profit or loss? • $316,420 profit
9.2 Vocabulary • T-account (Double-Entry Account) • An accounting method which resembles a capital T that uses debits on the left and credits on the right. Account Name Debits Credits
9.2 Vocabulary, cont. • Credit • Amount entered on the right side of a double-entry account (T-account) • Debit • Amount entered on the left side of a double-entry account (T-account)
Example: • A manager buys an oven for $8,500 cash. The transaction will be recorded as follows: Cash Equipment Debits Credits Debits Credits $8,500 $8,500
Do these T-accounts on your own! Enter the appropriate debits and credits for the following transactions in the T-accounts shown: (see page 391) a. Purchased supplies worth $1,800 on credit. b. Paid $800 cash for advertising. c. Paid $1,800 cash on transaction a. d. Paid $4,000 for wages. e. Collected $15,800 in revenue. f. Purchased a new soda fountain for $1,000 cash, $3,500 credit. T’s = Cash, Accounts Payable, Wages, Supplies, Revenues, Advertising, Equipment
9.3 Vocabulary • Income Statement • Shows a business’s revenue and expenses over a period of time, as well as the resulting profit or loss. • Net Income • Final profit or loss of the business for a given period of time; found at the bottom of the income statement for that period.
Did you know? • When someone wants to know the bottom line, what they’re referring to is net income, which is found at the bottom of the income statement. Net income gives a quick snapshot of how well or how poorly a business is performing.
The Chef’s Delight Quarterly Income Statement for The Chef’s Delight TOTAL REVENUE $57,000 EXPENSES Cost of Goods sold $29,000 Supplies expense 1,250 Wages 6,500 Advertising 400 TOTAL EXPENSES $ NET INCOME $
Chef’s Delight Income Statement Answer Key Chef’s Delight TOTAL REVENUE $57,000 EXPENSES Cost of Goods sold $29,000 Supplies expense 1,250 Wages 6,500 Advertising 400 TOTAL EXPENSES $ 37,150 NET INCOME $ 19,850
9.4 Vocabulary • Asset • An item of value that is owned by a business. • Paper asset - cash and credit extended to customers. • Physical assets - things such as buildings, equipment, furniture, accessories, and supplies. • Current assets - those that can be converted to cash within one year. • Fixed assets or capital items - items that have a life expectancy of at least three years, such as land, buildings, furniture, fixtures, and kitchen equipment.
BALANCE SHEET • A basic financial report that provides information about what a business owns and owes at a particular date. (See page 400) Assets = Liabilities + Owner’s equity
9.4 Vocabulary, cont. • Depreciation • Method of recording an asset’s gradual decrease in value over its lifetime. • Liabilities • Debts owed by a business. • Current liabilities • Must be paid in one year. (Accounts payables, Food supplies, advertising, etc) • Long-term liabilities • Must be paid beyond one year after the balance sheet date. (Mortgage or rent, bonds, van loan, etc.)
On your paper, identify the following: Asset(A) or Liability(L)Short-term(ST) or Long-term(LT) or N/A A or L ST or LT • Accounts payable ___ ___ • Stocks in a company ___ ___ • Tables and chairs ___ ___ • Food Inventory Items___ ___ • Tableclothes ___ ___ • Unpaid salaries ___ ___ • Profits ___ ___ • Cash on hand ___ ___
Owner’s Equity • Owner’s equity = Total assets – Total liabilities • It tells the worth of the business.
ANSWER FOR BELLWORK: • You would want to see the owner’s equity. • You would want to see the income statement. • You would want to see the balance sheet.