1.

02 : Hotel policies and procedures

1.02.03 : Finance Department

Procedure no. : 1.02.03.01.09 Effective date : 01/03/2012

Prepared by : Director of Finance GM approval :

Affecting : Finance Team

Subject : Prepaid, Provision and Accruals

Purpose
The purpose of this policy is to ensure that periodic financial statements are true and
fair taking into account all due income and expenses for the period under review. It is
not the policy of the hotel to suppress income or smooth expenses for financial
statement presentation or budget comparison.

Procedure
The following definitions shall apply:

Reserve

An amount set aside to provide for future expenses and which may extend beyond
the current year. Reserves may either arise in accordance with the terms of the
management agreement such as reserve for FF&E or from statutory regulations such
as the reserve for ambassador’s benefits arising under labor laws, or from generally
accepted accounting principles such as the reserve for doubtful debts. Such reserves
shall be carried forward to next fiscal years.

Provision

An amount set aside to provide for future expenses expected to arise within the
current fiscal year. Generally, provisions will not be legal commitments nor arise
from external transactions. Provisions cannot be carried forward to a future year and
any unused balances at year end must be written back. Examples include provisions
for operating equipment, major repairs and maintenance and major advertising
expenses.

Accrual

The recording of an expense when goods are received or a service has been
rendered, but invoices are yet to be received and processed. An accrual is
recognition of a legal commitment and a record of a partial or completed transaction.
Examples include accruals at month end for goods or services where the invoice is
not received e.g. electricity, for ongoing services which may only be invoiced in a
different cycle e.g. insurance, or for work in progress of services provided over more
than one month e.g. a major repairs & maintenance project being completed over two
months.

Prepayment/Deferred Expense
Deferring of expenses related to delivery of goods or services, the benefits from
which will be received over a period of time e.g. insurance premium or amortization
of marketing collateral and menus.

-End of Policy-