Hotel accounting system - Case Study Example

Running Head: HOTEL ACCOUNTING SYSTEM Accounting System of Accounting System Introduction The lodging industry was apparently one of the first industries to enlarge "definitive standards to provide precise regulation to accountants and operators. The standards evolved since consistency of layout and arrangements were, and are, still not strained under U.S. Generally Accepted Accounting Principles (GAAP)." Those standards were and are controlled in the Uniform System of Accounts for the Lodging Industry (USALI), which is published by the American Hotel and Motel Association. The USALI itself provides for up to 30 departmental statements, which include, in addition to those previously mentioned: telecommunications, garage and parking, golf shop, golf pro shop, guest laundry, health center, swimming pool, tennis, tennis pro shop, other operated departments, rentals and other income, human resources, information services, security, franchise fees, management fees, rent, property taxes and insurance, interest expense, depreciation and amortization, income taxes, house laundry, salaries and wages and payroll taxes and employee benefits. (Collins, M. & Parsa, H. 2006) The principal differences between hotel's transactions and internal control and those of additional businesses are found in the revenue cycle. Room revenue is the mainly significant source of income to hotel. The front desk is the center of the hotel's operation and the place where the guest ledger, which abridges and accrues all charges to guests using the hotel facilities, is maintained. Several of the functions executed by front desk employees are registering guests, recording room revenue, recording food and beverage and other guest charges, checking out guests, and settling guests' bills. Ceria Holiday Ceria Holiday, which is positioned in tourist area in North America, operates guesthouses. The fee charged to Ceria's guests includes both accommodation and all meals. The management of Ceria applies strict financial control of its activities in consideration of the competitiveness of the industry and the seasonal nature of the business. In this meticulous case, the area that needs constant monitoring on the costs is the restaurant. The manager of the restaurant is given an annual budget at the beginning of each year. Each month he/she receives performance statement with the following postulations: The budget has been calculated on the basis of 30-day calendar month with the costs of rent and depreciation being an apportionment of the fixed annual charge. The budgeted catering wages presume that: There is one member of the catering staff for every 40 guests staying at the complex; The daily cost of member of the catering staff is RM30 All other budgeted costs are variable costs based on the number of guest days. While services at the Ceria Hotel are provided by the property, revenues are recorded and charged to the barter accountability. On the other hand, the expense is offset against the barter asset account when the service is acknowledged. For peripheral reporting purposes, USAL recommends that the asset and legal responsibility accounts be netted and reflected as contemporary asset or accountability. This will result in revenues and expenses connected with the barter transaction being reported in different periods. Ratio analysis, in common, comprises the same types of ratios used in approximately any industry. Nevertheless, there are few industry specialized ratios peculiar to hotels and/or restaurants of which one ought to be aware. Average Room Rate = Rooms Revenue divided by Paid Rooms Occupied. Average Food Check = Total Food Revenue divided by Number of Covers. Covers refer to guests served in the food operation during the interlude.(Collins, M. & Parsa, H. 2006) current vital addition is "RevPar", which stands for Revenue per Available Room. It is calculated as moreover: Rooms Revenue divided by Rooms Available for Sale, or as Rooms Revenue divided by Rooms Available. The Ceria Hotel expresses preference for the second computation because "the purpose of the ratio is to determine whether the inventory of rooms is being managed optimally. For that reason, the denominator ought to include rooms out of order and temporary house use rooms." The Ceria Hotel also produces sample chart of accounts, which uses twelve-digit numbering system, consisting of four clusters of three digits each. The initial three digits are the property number. The second three digits are the revenue departments or cost centers. The third three digits are the chief ccounts on the balance sheet or income statement and the final three digits are sub-accounts functional for investigation and control. Apparently, this may vary considerably from taxpayer to taxpayer. Despite the fact that the accounting profession might not have seen fit to develop GAAP standards exclusively relevant to the lodging industry, the USALI has been widely adopted within the industry. Even though there is no prerequisite that lodging operator use the USALI, the degree of observance with this time-tested, turnkey system is substantial. The crucial reason for extensive adoption of the USALI has been comparability. Lodging operators have tendency to use financial statement data generated by competitors as point of reference against which to measure their own operations. If comparability is lacking, then there are no benchmarks. Also, while the system was developed for use within the United States, countless hotel operators around the world have adopted the USALI. Financial statements organized for external users, are based on GAAP. In addition to other items commonly found in most financial statements, lodging industry financials are expected to report on such items as China, Glassware, Silver, Linen, and Uniforms (CGSLU), and the House Bank. The USALI has an exceedingly departmentalized system of accounting, and includes Departmental Statements of Income. There are two chief department classifications in hotel: operating and overhead. The operating (revenue-producing) departments contain rooms, food and beverage, telecommunications, and similar departments. The operating cost departments include administrative and all-purpose, data processing, human resources, transportation, marketing, guest entertainment, energy costs, and property operation and maintenance. The flexible budget is used at Ceria Holidays to evaluate actual costs with flexible budgeted costs at diverse levels of activity and provides basis for performance evaluation. In the fixed budget is flexed using the authentic standard costs. By comparing this figure with the preceding performance statement, the new performance statement provides more pertinent and agreeable figures to the managers. With the new presentation statement, only one item that had been accurately budgeted, that is cleaning materials, which resulting zero variance. Meanwhile, one activity resulted in unfavorable variance after the budget is flexed, that item is the catering wages. The unfavorable variance is probably caused by incorrect budgeting plans in underestimating the number of guest days. large increasing in the actual number of the guest days on that particular month has greatly affected the catering wages. The workforce level has to be increased proportionally in order to serve the customers. After my analysis over the Ceria Holidays I will conclude that Relying on the single financial measure of performance such as cost is indeed not adequate for measuring success. This statement is applicable in the context of Ceria Holidays in general and Ceria Restaurant in particular. The performance measure are ways in which the performance of whole organization or parts of organization, such profit centers, cost centers, divisions, departments, and sections, and the managers responsible for these parts of the business, can be measured. Performance measures may be in the form of quantitative, qualitative, or profitability or comparison with budgets and standard-cost based measures as well as the figures for previous periods (Oxford Dictionary of Accounting). It is clearly not the cost alone. References R. Hussey; A Dictionary of Accounting (Oxford Paperback Reference), Oxford University Press; 3Rev Ed edition (27 Oct 2005), ISBN-10: 0192806270 Collins, M. & Parsa, H. (2006, March). Pricing Strategies To Maximize Revenues in the Lodging Industry. International Journal of Hospitality Management, 25(1). Read More