TABLE OF CONTENTS Accounting concepts and methods of financial analysis generally sound intimidating and complicated. Visions of CPAs, financial advisors, tax laws, attorneys, big ugly books, spreadsheets, paperwork nightmares, and migraine headaches regularly accompany any mention of accounting and finance. And this is often the case. However, entry-level hospitality managers need to be able to use accounting concepts and methods of financial analysis to conduct the daily operations of their departments. They need to understand them and be able to effectively apply them to their department operations.
Numbers are also used to measure a company's performance in meeting expected strategies, goals, and objectives. Typically, there are three commonly used measurements of success:
Customer satisfaction
Employee satisfaction
Profitability and cash flow
Performance is measured and defined against these goals with the use of numbers.
This chapter introduces fundamental accounting concepts and explains how numbers are used to apply these accounting concepts to daily operations. It likewise introduces fundamental methods of financial analysis and explains how numbers are used to perform financial analysis. The objective is, first, to understand these fundamental concepts; second, to be comfortable working with them; and, third, to be able to apply them. Subsequent chapters will go into more detail and build on the foundation developed in this chapter.
Numbers understanding them and working with them form the foundation of both accounting concepts and methods of financial analysis. Numbers provide descriptions and measurements that relate to the operations of a business. Let's define a few terms.
