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Chapter 5 Accounting. Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ 07458 Development.

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Presentation on theme: "Chapter 5 Accounting. Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ 07458 Development."— Presentation transcript:

1 Chapter 5 Accounting

2 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Development of systems to collect and report financial information Analyzing this same information Making finance-related recommendations to assist management decision making Record and summarize financial data Purpose of bookkeeping: The Accounting Function Facility Engineering & Maintenance Controller: The individual responsible for recording, classifying, and summarizing the hotel’s business transactions. Purpose of accounting:

3 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Financial management system that collects accounting data from an individual hotel site and combines and analyzes that data at the same site GM and controller take larger role in preparing financial documents Financial management system that collects accounting data from an individual hotel(s), then combines and analyzes the data at a central site Prevails in chain-operated or multiproperty hotel companies; company will likely employ CPA for data analysis Centralized accounting systems: Decentralized accounting systems: The Accounting Function (cont.)

4 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Rooms available for forecasted period Estimated rooms for the period Estimated occupancy rate for period Total rooms sold/total rooms available = occupancy percent (%) Estimated ADR (average daily rate) for period – Total room revenue / Total number of rooms sold = ADR RevPar (revenue per available room) for forecasted period – Occupancy % X ADR = RevPar Rooms revenue forecast should include at minimum: Revenue Forecasting: Rooms Revenue

5 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Number of guest rooms sold directly impacts amount of Food and Beverage sales volume Revenue Forecasting: Food & Beverage Revenue Controller will forecast sales generated from: – Room service – Banquets – Meeting room Food and Beverage revenue – Audio visual equipment rental – Service charges

6 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Pay-per-view movies Parking charges Internet access charges Gift shop sales of newspapers, cigarettes, candy, lotion, soda, etc. Telephone (local/long distance calling) Guest laundry Coat check fees Golf fees Tennis fees Health club usage fees Pool fees Typical examples of other revenue sources include: Revenue Forecasting: Other Revenue

7 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Allowing management to anticipate/prepare for future business conditions Providing communication channel whereby hotel objectives are passed to various departments Encouraging department managers who have participated in budget preparation to establish their own operating objectives, evaluation techniques, and tools Providing GM with reasonable estimates of future expense levels and serving as tool for determining future room rates Helping controller and GM to periodically evaluate hotel and its progress toward financial objectives Important functions of a budget: Budgeting

8 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Long-Range Budgets Encompass relatively lengthy period, generally 2–5 years or more Useful for long-term planning, considering wisdom of debt financing, refinancing, and scheduling of capital expenditures Budgeting (cont.) Annual Budgets Must be produced by individual hotels and submitted to central office for review in large, multiunit hotel companies Developed to coincide with calendar year Monthly Budgets Helps determine whether maintaining progress toward goals developed in annual budget Great use for seasonal hotel In text, refer to figure showing Waldo hotel property operations and maintenance department operating budget for January

9 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Known as profit and loss statement Lists hotel’s revenues, expenses, GOP, and fixed charges for specific time (month, fiscal quarter, or year) In no case should this period exceed middle of next reporting period Income statement Balance sheet Statement of cash flows Key financial documents: Income statement: Financial Statements: Income Statement

10 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Income Statement Information This Period’s Actual Revenues Less Direct operating expense Equals Department operating income Less Overhead (undistributed) expense Equals Net income (GOP) Less Fixed expense Equals Income before taxes Financial Statements: Income Statement (cont). GM can answer: How did hotel perform during this period?

11 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Tricolumned Income Statement This Period’s Actual This Period’s Budgeted Last Year Same Period Actual Revenues Less Direct operating expense Equals Department operating income Less Overhead (undistributed) expense Equals Net income (GOP) Less Fixed expense Equals Income before taxes Financial Statements: Income Statement (cont). GM can answer: Hotel performance during this period? Hotel performance compared with performance estimate (budget)? Where did estimates vary significantly? How did hotel perform compared with same period last year? Where were significant changes from last year evident?

12 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Of all assets, none consider relative value/worth of staff, including the GM, actually operating hotel Value of experienced, well-trained staff not quantified Provides a point-in-time statement of overall financial position of hotel “Snapshot” of financial health of hotel Captures the financial condition of hotel on day it is produced, rather than telling how profitable the hotel was in a given accounting period Functions of balance sheet: Financial Statements: Income Statement (cont.) Limitations of balance sheet:

13 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Financial Statements: Balance Sheet Waldo Hotel Balance Sheet Assets Cash$75,000 Accounts receivable50,000 Inventories on hand25,000 Prepaid expenses10,000 Total assets$160,000 Property and equipment$7,000,000 (Less accumulated depreciation)500,000 Net property and equipment6,500,000 Total assets$6,660,000

14 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Financial Statements: Balance Sheet (cont.) Waldo Hotel Balance Sheet (cont.) Liabilities and owners’ equity Current liabilities Accounts payable $75,000 Wages payable 25,000 Total current liabilities $100,000 Long-term liabilities Mortgage payable $6,300,000 Total liabilities $6,400,000 Owners’ equity 260,000 Total liabilities and owners’ equity $6,660,000

15 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ How much cash was provided by hotel’s operation during accounting period? What was hotel’s level of capital expenditure for that period? How much long-term debt did hotel commit to during that period? Will cash be sufficient for next few weeks, or will short-term financing be required? It is critical that the hotel not only is profitable, but also that it maintains solvency. Statement of cash flows can answer the following: Financial Statements: Statement of Cash Flows It shows cash effects of hotel’s operating, investing, and financing activities.

16 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ For rooms: – Number of rooms available for sale, number of rooms sold, occupancy rate, ADR, RevPar, and other rooms revenue information For Food and Beverage: – Restaurant sales, bar and lounge sales, meeting room rentals, banquet sales, and other Food and Beverage revenue information For other income: – Telephone revenue, in-room movie revenue, no-show billings, and other income The “Daily” Controller’s office should provide GM with a timely recap of prior day’s rooms, Food and Beverage, and other revenues Prepared from data supplied nightly by PMS Daily Operating Statistics: Manager’s Daily Sales Report The Daily includes the following: The more detail you desire, the longer the Daily!

17 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Rooms available Total rooms occupied Rooms occupied by guest type Occupancy percent Total ADR ADR by guest type Total RevPar Documentation and verification of night auditor’s report is an important function of the controller’s office. Detailed room revenue report includes: Night auditor report provides a wealth of info. on room sales. Daily Operating Statistics: Detailed Room Revenue Statistics

18 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Adjustments and Allowances Reduction in sales revenue credited to guests because of errors in properly recording sales or to appease a guest for property shortcomings. Daily Operating Statistics: Adjustments and Allowances Adjustment Voucher ADJUSTMENT N O (1) DATE (2) 200xx NAME(3) ROOM OR ACCT.NO. (4) EXPLANATION (5) SIGNATURE X(6) (7)

19 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Employee error in charges – Employee training program, cash sales systems, or guest service techniques Importance of completion of allowance & adjustment voucher: Daily Operating Statistics: Adjustments and Allowances (cont.) Hotel-related problems – Equipment inspection programs, guest service training Guest-related problems – Total monthly allowance and adjustments / total room revenue = room allowance and adjustment % – This percentage varies based on hotel age, quality of staff and training programs, and type of guest typically served

20 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Charging guests’ credit cards for items not purchased, then keeping money from erroneous charges Changing totals on credit card charges after guest has left, or imprinting additional credit card charges and pocketing cash difference Mis-adding legitimate charges to create higher-than-appropriate total, with intent to keep the overcharge Charging higher-than-authorized prices for products/services, recording proper price, and keeping the overcharge Giving/selling credit card numbers to unauthorized individuals outside hotel Credit card-related techniques used to defraud guests: Internal Controls: Cash

21 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Cashier training programs Sales revenue recording systems Cash overage/shortage monitoring systems Enforcement of employee disciplinary procedures for noncompliance Methods of evaluating cash control systems: Internal Controls: Cash (cont.)

22 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Facility Engineering & Maintenance Accounts Receivable (AR): Money owed to hotel because of sales made on credit. Internal Controls: Accounts Receivable Facility Engineering & Maintenance Direct Bill: An arrangement whereby a guest is allowed to purchase hotel services and products on credit. Guest seeking credit would complete a “Direct Bill Application” (refer to figure in text).

23 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Which guests are allowed to purchase goods/services on credit How promptly those guests will receive bills What is total amount owed to hotel, and how long have those monies have been owed Controller’s job to establish: Internal Controls: Accounts Receivable (cont.) Facility Engineering & Maintenance A controller, together with a GM, should establish credit policies that maximize number of guests doing business with hotel yet minimize hotel’s risk of creating uncollectable accounts receivable.

24 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Accounts Receivable Aging Report Waldo Hotel: Accounts Receivable Aging Report for January, 200X Total amount receivable $100, Number of days past due Less than 3030–6060–9090+ $50,000 $30,000 $15,000 _____ $5,000 _____ Total$50,000$30,000$15,000$5,000 % of Total50%30%15%5% Internal Controls: Accounts Receivable (cont.)

25 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Payment of proper amounts Payments made in a timely manner Payment records properly maintained Payment totals assigned to appropriate departments Charge for goods/services used by hotel, invoiced by vendor, not yet paid Sum total of all invoices owed by hotel to its vendors for credit purchases made by hotel Accounts Payable (AP): Internal Controls: Accounts Payable Four major concerns in AP systems:

26 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Use a system of coding to assign actual costs to predetermined cost centers Implement functioning expenses coding system Create system whereby total payments to vendors match vendor billings exactly Maintain good relations with vendors by prompt payment of invoices Take advantage of discounts offered by vendors for prompt payment Ensure legitimate invoices are paid only for amount actually due Invoices, and payments for those invoices, should be checked by at least two people Payment of proper amounts: Internal Controls: Accounts Payable (cont.) Payments made in a timely manner: Payment records properly maintained: Payment totals assigned to appropriate departments:

27 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Ensuring payment is made to vendors only for goods/services actually received Internal Controls: Purchasing and Receiving Payment should be withheld if all services have not been performed Before AP invoice is paid, check terms of sale, product prices quoted by vendor, and list of products against actual vendor’s invoices Devise payment system that ensures member of property management team has: – Preauthorized work – Confirmed cost of work – Verified work is satisfactorily completed

28 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Internal Controls: Inventories Facility Engineering & Maintenance Secure accurate inventory from each department where monthly inventories are taken (refer to monthly income statement). Beginning period value of towel inventory + Towel purchases = Cost of towels available – Ending period value of towel inventory Cost of towels used in period

29 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Proper payment of employees’ salaries and wages is an important function of the controller’s office Keep detailed, department-specific (individual) payroll info. – Important due to fluid nature of labor usage in hotel Advice to GM about prevailing wage rates, worker productivity, variation from budget, and future labor needs Internal Controls: Payroll

30 Hotel Operations Management, 2nd ed.©2007 Pearson Education Hayes/NinemeierPearson Prentice Hall Upper Saddle River, NJ Internal Audit Independent verification of financial records performed by organization operating hotel Cost-effective in multiunit hotels Audits Facility Engineering & Maintenance Auditor: The individual conducting independent verification of financial records. External Audit Independent verification of financial records performed by accountants employed by organization operating the hotel


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