Chart of Accounts For Hotel

Financial Statements
for a Sole
Proprietorship
Chapter 9
The Accounting Cycle
Collect &
verify source
documents
Prepare a
post-closing
trial balance
1 2 Analyze each
transaction
9
8 3
Journalize & Journalize
post closing each
entries transaction
Prepare 4
financial
statements
7 Post to the
ledger
6
Prepare a
5
Prepare a
Worksheet trial balance
Step 7 – Prepare Financial
Statements
• Financial Statements – summarize the changes
resulting from business transactions that occur during
an accounting period.
• Income Statement – reports net income/loss for a specific
time period.
• Statement of Owner’s Equity – summarizes changes in the
owner’s capital account as a result of business transactions
that occur during the period.
• Balance Sheet – a report of the balances in the permanent
accounts at the end of the period.
• Statement of Cash Flows – summarizes the amount of cash
taken in, sources of cash, amount paid out, uses of cash.
Income Statement Sections
• Heading – business name, report name, period
covered.
• Revenue for the period
• Write “Revenue:”.
• Enter the revenue account names beginning on the
second line and indented.
• Enter account balances:
• Balances are listed in the left column and totaled in the
right column – columns do not represent debits/credits.
• If only one account, enter it in the right column.
• Expenses for the period
• On the line following revenues, write
“Expenses:”.
• Enter the expense account names beginning on
the next line and indented.
• Enter account balances:
• Single rule under the last balance.
• Write total expenses after the last expense account
and indent it.
• Add the expenses and write the total in the right
column.
• Net Income/Loss
• Single rule under total expenses amount.
• Subtract total expenses from total revenue to
find net income and enter it in the right column.
• On the same line, write net income/loss.
• If the net income amount matches the
worksheet, double rule the amount.
• If it is a net loss, the net loss amount should be in

parenthesis or written in red.
Income Statement
Statement of Owner’s Equity
• An increase(decrease) means the owner’s
claims to the business’s assets as grown
(reduced).
• Information to prepare this statement comes

from the worksheet, income statement, and
the capital ledger account.
• Heading – business name, report name,

period covered.
Completing the Statement of OE
• On the first line, write “Beginning Capital, date”
(first day of the period).
• In the right column, enter the capital account
balance at the beginning of the period (ledger).
• Enter the increases to the capital account:
investments and net income.
• Write “Add: Investments by Owner” under the beg.
Balance and put the total in the left column.
• Indent and write “Net Income” and put the total in
the left column.
• Single rule
• Write “Total Increase in Capital” and put the
total amount in the right column with a
single rule.
• Write “Subtotal” and add beg. capital to total
increase. Enter result in right column.
• Enter the decreases to the capital account:
withdrawals and net loss.
• Write “Less: Withdrawals by Owner” and put the
amount in the right column with a single rule.
• If there was a net loss, you’d follow the steps we
did for net income.
• Write “Ending Capital, date” (last day of
period).
• Subtract the withdrawals amount from the
subtotal to determine the ending balance of
the capital account and enter in right column
with a double rule.
Statement of OE
• Capital beginning balance:
• For an ongoing business, the worksheet balance
may not be the balance at the beg. of the period.
• Two ways to determine beg. capital account
balance:
• Look at the ledger.
• Subtract additional investments from the worksheet
account balance.
Statement of OE
Balance Sheet
• Reflects the accounting equation at the end
of the period.
• Reports the business’s assets and the claims
against those assets on a specific date.
• States the business’s financial position:
• What a business owns.
• What a business owes.
• What a business is worth.
Balance Sheet Sections
• Heading – business name, report name, date.
• Assets
• Write “Assets” on the first line (left aligned or
centered).
• Write the asset accounts (indented or left
aligned) in order of liquidity and their balances
in the left column. Single rule.
• Write “Total Assets”, indented. Add the account
balances and enter total in the right column.
Balance Sheet Sections
• Liabilities and OE
• On the line after Total Assets, write “Liabilities”
(left aligned or centered).
• List the liability accounts and their balances in
the left column, single rule.
• Write “Total Liabilities”, indented and add the
liability balances. Enter the total in the right
column.
• Write “Owner’s Equity” as a heading.
• Write the capital account name and ending
balance from Statement of OE in the right
column.
Proving the Equality
of the Balance Sheet
Assets = Liabilities + Owner’s Equity
• Single rule under capital balance.
• Write “Total Liabilities and Owner’s Equity”,
indented.
• Add total liabilities and ending capital. Enter
total in the right column.
• This total must equal total assets.
• If there is an error, it usually occurs when transferring
amounts to the financial statements.
• When total assets equals total liabilities and OE,
double rule both totals.
Balance Sheet
Statement of Cash Flows
• The flow of cash keeps a business alive.
• Summarizes an accounting period:
• Amount of cash the business took in.
• Sources of cash.
• Amount of cash the business paid out.
• Uses of cash.
Ratio Analysis
• The process of evaluating the relationship
between various amounts in financial
statements.
• Determines the financial strength, activity or
debt-paying ability of a business.
Ratio Analysis
• Profitability Ratios – used to evaluate the
earnings performance of the business.
• Measure of ability to grow and continue to earn
revenue.
• Return on Sales – examines the portion of each
sales dollar that represents profit.
Net income/Sales = Return on Sales (percent)
• The percentage indicates that each dollar of sales

produced that percent of profit.
Ratio Analysis
• Liquidity Measures – the ease with which an
asset can be converted to cash.
• Current Assets – those used up or converted to cash
during the normal operating cycle.
• Current Liabilities – debts of the business that must
be paid within the next account period ( a year).
• Working Capital – the amount by which current assets
exceeds current liabilities.
Current Assets – Current Liabilities = Working Capital

Ratio Analysis
• Liquidity Ratio – measures the ability of a
business to pay its current debts and to
provide for unexpected needs of cash.
• Current Ratio – reflects the relationship between
current assets and current liabilities.
Current Assets/Current Liabilities = Current Ratio
• A ratio of 2:1 or higher is considered favorable.

• Able to pay debts and has twice as many current assets
as its current liabilities.
Ratio Analysis
• Liquidity Ratio
• Quick Ratio – a measure of the relationship
between short-term assets (cash and AR) and
current liabilities.
Cash & AR/Current Liabilities = Quick Ratio
• A quick ratio of 1:1 or higher is considered

adequate.
• Business has $1.00 in liquid assets for each $1.00 of
its current liabilities.
• Compare year to year

Chart of Accounts For Hotel

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What are the main sections of the income statement and what information does each contain?

What are the main ratios used to analyze a business's performance and what do they measure?

Financial Statements

• If it is a net loss, the net loss amount should be in

• Information to prepare this statement comes

• Heading – business name, report name,

Net income/Sales = Return on Sales (percent)

• The percentage indicates that each dollar of sales

Current Assets – Current Liabilities = Working Capital

Current Assets/Current Liabilities = Current Ratio

• A ratio of 2:1 or higher is considered favorable.

Cash & AR/Current Liabilities = Quick Ratio

• A quick ratio of 1:1 or higher is considered

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