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Chapter 2, investing and financing decisions and the accounting system. After studying this chapter, you should be able to: Define the objective of financial reporting, the elements of the balance sheet, and the related key accounting assumptions and principles; identify what constitutes a business transaction and recognize common balance sheet account titles used in business. | Chapter 2 Investing and financing decisions and the Accounting System McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2: Investing and Financing Decisions and the Accounting System Understanding the Business To understand amounts appearing on a company’s balance sheet we need to answer these questions: What business activities cause changes in the balance sheet? How do specific activities affect each balance? How do companies keep track of balance sheet amounts? The “fast-casual” segment of the $1.7 trillion restaurant industry generates more than $23 billion in sales annually. What identifies a restaurant as fast-casual? Typically, customers still order at the register as in a fast-food restaurant, but there are usually no drive-thru options and the food is made to order and served in modern and upscale surroundings. Checks typically range between $8 and $16. The largest fast-casual restaurant chain is Chipotle Mexican Grill, followed by Panera Bread Company. Franchising is common in chain restaurants. The largest restaurant to use franchising is Subway, with over 37,000 restaurants—all franchised. Franchising involves selling the right to use or sell a product or service to another. This is an easy way for someone to start his or her own business because the franchisor (the seller, such as Panera Bread) often provides site location, design, marketing, and management training support in exchange for initial franchise fees and ongoing royalty fees usually based on weekly sales. At Panera Bread, for example, only 48 percent of the stores are company-owned. In this chapter we will focus on Chipotle Mexican Grill. Unlike most restaurant chains, Chipotle does not franchise the business. All restaurants are company-owned. Before we can adequately prepare a balance sheet, we must know what activities caused changes in it. Additionally, we have to know how specific activities affect each balance. Finally, we need to know | Chapter 2 Investing and financing decisions and the Accounting System McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2: Investing and Financing Decisions and the Accounting System Understanding the Business To understand amounts appearing on a company’s balance sheet we need to answer these questions: What business activities cause changes in the balance sheet? How do specific activities affect each balance? How do companies keep track of balance sheet amounts? The “fast-casual” segment of the $1.7 trillion restaurant industry generates more than $23 billion in sales annually. What identifies a restaurant as fast-casual? Typically, customers still order at the register as in a fast-food restaurant, but there are usually no drive-thru options and the food is made to order and served in modern and upscale surroundings. Checks typically range between $8 and $16. The largest fast-casual restaurant chain is Chipotle Mexican Grill, .
