The Accounting Department

1. Chapter 9 The Accounting Department Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

2. On-Property Hotel Accounting Controller: the individual responsible for recording, classifying, and summarizing a hotel’s business transactions. C.P.A.: Certified Public Accountant. An individual designated by the American Institute of Certified Public Accountants as competent in the field of accounting. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

3. On-Property Hotel Accounting Centralized Accounting: a financial management system that collects accounting data from an individual hotel(s), and then combines and analyzes the data at a different (central) site. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

4. On-Property Hotel Accounting Decentralized Accounting: a financial management system that collects accounting data from an individual hotel site and combines and analyzes that data at the same site. Audit: an independent verification of financial records www.AICPA.com Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

5. On-Property Hotel Accounting Good budgets assist the hotel in many ways: 1. Anticipate/prepare for future conditions 2.Allow hotel objectives to be passed along 3. Encourage managers to establish their own objectives, evaluation techniques, and tools 4. Provide estimates of future expenses; help determine future room rates and other pricing 5. Help Controller/G.M. self-evaluate progress 6. Estimate financial returns on investments Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

6. On-Property Hotel Accounting Types of operating budgets: • Long range (2-5+ years) Capital Expenditures: the purchase of equipment, land, buildings, or other assets necessary for the operation of the hotel. • Annual • Monthly Seasonal Hotel: a hotel whose revenue and expenditures vary greatly depending on the time (season) of the year the hotel is operating. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

7. Income Control • Operational Control • Cash Control • Accounts Receivable Control Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

8. Operational Control Manager’s Daily: a re-cap of the prior day’s rooms, food and beverage, and other sales. Should include information about: • Rooms • Food and Beverage • Other Income Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

9. Operational Control Allowances and Adjustments: reductions in sales revenue credited to guests because of errors in properly recording sales or to satisfy a guest who has experienced property shortcomings. House Count: an estimate of the number of guests staying in a hotel on a given day. Sign-off: to verify or approve for accuracy or payment. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

10. Operational Control The Controller should provide management with info from the prior night’s audit: • Rooms available • Total rooms occupied • Rooms occupied by guest type • Occupancy % • Total ADR • ADR by guest type • Total RevPar Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

11. Cash Control “Cash” includes actual currency, personal & business checks, and credit/debit cards Shift bank: the total amount of currency and coins in a cashier’s drawer at the beginning of that cashier’s work shift. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

12. Cash Control Short: a situation in which cashiers have less money in their cash drawer than the official sales records indicate. Over: a situation in which cashiers have more money in their cash drawer than the official sales records indicate. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

13. Cash Control Evaluate cash control systems with: • Cashier training programs • Revenue recording systems/procedures • Cash overage and shortage monitoring • Enforcement of employee disciplinary procedures for non-compliance with required procedures Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

14. Cash Control Situations which could result in an allowance or adjustment voucher: • Employee error in charges • Hotel-related problems • Guest-related problems MOD: short for Manager On Duty. The individual on the hotel property responsible for making any management decisions required during the period he or she is MOD. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

15. Cash Control Total Monthly Allow. & Adjust. = Room Allow. & Adjust. % Total Room Revenue 0.0-3.0 % of Total Room Revenue is most common Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

16. Accounts Receivable Control Accounts Receivable (AR): money owed to the hotel because of sales made on credit. Controllers must establish: • Which guests will be allowed to purchase on credit? • Is there a max. amount the guest is allowed to charge? • How promptly will those guests receive their bills? • What is the total amount owed to the hotel and what is the length of time those monies have been owed? Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

17. Accounts Receivable Control Accounts Receivable Aging: a process by which the average length of time money owed to a hotel because of a credit sale is determined. Write-off:a guest’s direct bill that is considered uncollectible by management and as a result is subtracted from the hotel’s A.R. total. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

18. Expense Control Accounts Payable (AP): the sum total of all invoices owed by the hotel to its vendors for credit purchases made by the hotel. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

19. Purchasing and Receiving A payment system must be in place to ensure that team members have: • Pre-authorized the work to be done • Confirmed the cost of the work to be done • Verified that the work has been satisfactorily completed before payment is made Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

20. Accounts Payable Areas of concern when establishing an effective A.P. management system: • Payment of proper amounts • Payments made in a timely manner • Payment records properly maintained • Payment totals assigned to proper department or area Coding: the process of assigning incurred costs to pre-determined cost centers or categories. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

21. Financial Reporting Financial Statements:financial summaries of a hotel’s accounting information. GAAP: short for “Generally Accepted Accounting Principles.” Techniques, methods, and procedures utilized by all accountants in the preparation of financial statements. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

22. Financial Reporting Key financial documents: • Income statement • Balance sheet • Statement of cash flows (SCF) Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

23. The Income Statement P&L: short for the Profit and Loss statement, P&L is also a synonym for the “Income and Expense” statement. The P&L records total hotel revenues and expenses for a specific time period. GOP: short for Gross Operating Profit. It refers to hotel revenue less those expenses typically controlled at the property level. Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

24. The Income Statement Fixed Charges: the expenses incurred in the purchase and occupation of the hotel itself. Fiscal Quarter: any three month period within the 12 month period that makes up a company’s operating year.  www.amazon.com Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

25. The Income Statement Tri-columned Statement: an Income statement that lists: • actual hotel operating results from a specific time period • budgeted operating estimates for the same time period • the actual operating results from the prior year’s same time period Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

26. The Balance Sheet www.hotelbusiness.com Pre-paid Expenses: expenditures made for items prior to the accounting period in which the item’s actual expense is incurred. Assets – Liabilities = Equity Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.

27. The Statement of Cash Flows “Cash Is King” Solvency: the ability of a hotel to pay its debts as they come due. Shows the effects of cash on the hotel’s: • Operating Activities • Investing Activities • Financing activities www.accounting.rutgers.edu/raw/fasb/index.html Hayes/Ninemeier: Foundations of Lodging Management. (C) 2006 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved.