Accounting for Hotels (With

Accounting Entries) | Hotel

Accounts
Introduction to Hotel Accounting:
We all know that the main business of a hotel is to provide food and
accommodation (i.e., shelter). But there are some big hotels who
provide other comforts, recreations, entertainments, business facilities
etc. Naturally, the scheme of accounting will depend on the nature and
size of a hotel and its requirement although the principle of accounting
will be the same.

A hotel may have different provisions for serving of refreshments or

for serving of lunches and dinners including the arrangement of bar.
Sometimes, they may also have separate sections for catering at
different places on different social occasions. For this purpose,
separate accounts for purchases of various types of items and sales of
various types of items must be maintained in order to ascertain the
correct position which, in other words, will help them in maintaining
accounts properly.

An Analytical Purchase Book and a Cash Book (Payment

side) may be maintained for recording purchase and
expenses with different columns for:
Wines and Minerals,
Groceries and Provisions,

Cutlery, Glass, Plate etc.,

Bedding and Linens,

Establishments,

Furniture and Fixtures etc.

(A ledger column must also be made in Cash Book for recording the
disbursement made for visitors.) On the contrary, the Sales Book and
the receipt side of the Cash Book must have similar analysis columns
for: Breakfast, Lunches and Dinners; Bar, Cigarettes and Cigars etc.
Carriages (if any) etc.

(Besides the above, Cash Book will incorporate two other ledgers, viz.,
Visitors’ Ledger and Personal Ledger which are discussed in a
subsequent paragraph.)

Fixation of Room Rate:

While ascertaining room rate the following points should
carefully be noted:
(a) Availability of rooms in the hotel;

(b) Expected rate of return of investments;

(c) Expenditure (Both Capital and Revenue);

(d) Location of the hotel;

(e) Location of the particular room;

(f) Availability of various facilities;

(g) Occupancy Rate, etc.

Method of Calculation:
For ascertain room rate, normally the total estimated expenditure
(revenue) plus estimated rate of return on investment is divided by the
number of rooms which are available for letting out purposes. It may
be mentioned here that the charges for Single Room, Double Room,
South-facing Room will be quite different than the other.

Room Occupancy Rate is calculated as:

Charging Room Rate:

Usually for a 24-hour stay one day’s charge is taken, i.e., the occupant
is allowed to stay for 24 hours from the time of arrival to the time of
departure. The occupant is to pay one day’s charge even if he stays for
less than 24 hours. It is interesting to note that check-out time is
followed in some hotels which is usually fixed at 12 noon. For this, full
charge is to be paid by the occupant from the time of occupying the
room to the check-out time which usually is less than 24 hours. For
example, X occupied a room in a hotel at 7.00 a.m. in the morning on
Monday where check out time was fixed at 12.00 a.m. He left the hotel
on. Tuesday at 4.00 p.m. He should pay 3 days charges (i.e., from 7.00
a.m. to 12 a.m. on Monday, + 12 noon of Monday to 12 noon of
Tuesday +12 noon of Tuesday to 4 p.m. of Tuesday).

Sales Tax and Hotel Expenditure Tax:

Usually sales taxes are paid by the occupant on various items at the
rates framed by the State Government and the same is deposited at
regular intervals to the State Government. Similarly, Hotel
Expenditure Tax (HET) is levied by some luxury hotels- on the bills
(including Sales Tax) @ 10% which is to be submitted to Central
Government.

Illustration 1:
A five-star hotel has 660 rooms in all, out of which 52 rooms are used
for operational purposes and 8 rooms are used by the departmental
managers.

If 480 rooms are occupied by the guests on any day, calculate the
room occupancy rate.

Illustration 2:
A five-star hotel in Chennai has 320 lettable rooms on a particular day.
240 rooms are occupied by 300 guests. Calculate Double Occupancy
Rate.
Illustration 3:
Mr. A arrives in Mumbai and checks into a room in a five-star hotel at
4 p.m. on 1st June 2007 at Rs. 500 per day plus 10% for service
charges on European Plan. Check out time in the hotel is 12 noon.

Calculate the amount payable by Mr. A in each of the

following circumstances:
(i) If Mr. A checks out at 10 p.m. on the same day

(ii) If Mr. A checks out at 9 a.m. on 2nd June 2007

(iii) If Mr. A checks out at 6 p.m. on 2nd June 2007

(iv) If Mr. A checks out at 4 p.m. on 3rd June 2007.

Show also the amount payable by Mr. A if the charges were leviable @
Rs. 500 for a stay of every 24 hours or part thereof plus service
charges at 10%.
Visitors Ledger:
Practically, the personal accounts for visitors at an hotel may be most
conveniently recorded with the help of a tabular Visitors’ Ledger.

A typical form of a Visitors’ Ledger is presented:

Note:

Each day’s transactions are maintained in a separate page together

with a column for each visitor. The room no. is indicated against each
and every visitor. The amount brought down in each column
represents the balance due at the commencement of the day from the
concerned visitor. Similarly, when an account is settled, the cash
received is recorded as a credit and, consequently, there will be no
balance in the account which will be carried forward in the next day’s
page. But if there is any due at any date from a visitor, the same is
transferred to a personal ledger.
The daily totals of each heading (both debit and credit) are recorded in
the total column on the right-hand side. The same is transferred to a
summary ledger or ordinary ledger for the purpose of obtaining the
monthly, quarterly or half-yearly totals.

Form of Visitors’ Ledger in ordinary ledger form:

To Balance Brought down:

Besides the above, the Stock Ledger has to be maintained in detail so
that direct control must be exercised regarding purchases, sales or
uses of different items.

The undernoted principles should be remembered:

(i) Separate accounts have to be maintained for receipts like Wines,
Beer and Spirits etc. and payments made against them, the balance
being transferred to Profit and Loss Account.
(ii) Appropriate adjustments are also to be made for Meals, Laundry
etc. between the staff and the proprietor for ascertaining correct
result. For this purpose, Wages Account (for staff) and Drawings
Account (for proprietors) will be debited and the particular account,
say, Meal, will be credited. Besides, all kinds of transfer from one
section to another is to be maintained accordingly.

(iii) Expenses are to be apportioned among the different sections in an

appropriate manner and, consequently, the same will be adjusted in
Profit and Loss Account.

In short, while preparing final accounts, special attention must be

made for adjustments entries relating meals, accommodation etc. of
the staff as well as the propriety. From accounting point of view, it is
better to open Working Accounts for various sections of Bar,
Accommodation, Restaurant, Lunch, Dinners etc. For instance, when
collections are made, Accommodation Account is credited whereas
rates, taxes, repairs to building, depreciation on bedding, attendants’
wages, proportionate establishment charges etc. are debited to
Accommodation Account. Similarly, cost and expenses relating to
meat, eggs, fish, poultry, groceries, provisions etc. should be
apportioned between Restaurant and Lunches and Dinners. It
becomes also necessary to prepare separate accounts for Billiards
Room, Banquet Halls, and Laundry etc.

Illustration 4:
The following are the balances from the ledger of Sagarika
Hotel on 31st Dec. 2006:
Illustration 5:
From the following particulars pertaining to four rooms in a
hotel draw up a suitable columnar ledger:
(i) Room rent for each room Rs. 500 + 15% tax.

(ii) Room 1 : Breakfast Rs. 45, Laundry Rs. 50, Local Phone calls Rs.
15.

(iii) Room 2 : Lunch Rs. 85; S.T.D. Calls Rs. 125; Wine Rs. 60.
Previous day’s outstanding amount Rs. 1.250.

(iv) Room 3 : Private Taxi hired from hotel Rs. 400; S.T.D. calls Rs.
350; Dinner Rs. 125; Whisky Rs. 100; Deposited Rs. 3,500 with the
hotel.

(v) Room 4 : Opening due from the guest Rs. 575; Laundry Rs. 30;
Lunch Rs. 120.

(vi) The guest in Room 3 is a regular visitor and is entitled to a

discount of 20% on room rent.

All the foregoing transactions pertain to a single day.

Illustration 6:
Following is the information in respect of Hotel Miramar for
the 14th April 1991:
You are required to write-up Visitors’ (guest) Ledger in respect of the
same, given that there are no opening balances:

1. The hotel has 4 rooms with room charges @ Rs. 300 per day and
one suite @ Rs. 500 per day. An advance of Rs. 500 is taken from each
customer in cash except from Gold Card-holders.

2. Room no. 3 was vacant and room no. 4 was occupied after 2 p.m. for
which the manager has agreed to grant a rebate of 30% on room
charges to the guest for that day. Occupant of Room No. 1 is a Gold
Card-holder entitling him to a discount of 10% except on wines,
beverage and cigarettes. The guest in the suite checked out on that
day.
3. The details of other expenses and facilities used by the
guest are:
 1) Following are the balances from the ledger of Sagarika Hotel on 31.03.2012

Capital Rs. 56,865 free hold premises Rs. 46800, glass and china 1101, furniture and fittings 8934, cutlery
and plates 390, rate taxes and insurance 1713, salary 2400, wages 4305, laundry 951, coal and gas 2160,
electric lighting 1128, general expenses 1710, visitors account 1354, sundry creditors 2575.

Stock on 1-04-2011
Wine 1239, spirits 378, beers 165, minerals 147, cigars and cigarettes 114, sundry provision and stores
183, coal 150.

Purchases
Meat 3627, fish and poultry 3960, sundry provision and stores 5220, wine 1881, spirits 2190, beers
1152, minerals 1050, cigars and cigarettes 240.

Sale
Wine 3870, spirit 4335, beers 1863, minerals 2160, cigars and cigarettes 390

Charges
Meals 23829, room 9375, fire in bedroom 582, washing charges 219
Repairs, renewal, and depreciation
Premises 348, furniture and fitting 660, glass and china 609, linen 390, cutlery and plates 207

Cash book debit balance

Bank 8148, in hand 219

Prepare final accounts for the year ended 31-03-2012, stock on 31-03-2012, wine 1197, spirit 333, beers
174, minerals 357, cigars and cigarettes 69, sundry provision and stores 141, coal 99.

Profit and loss account of Sagarika Hotel

Particulars Rs Particulars Rs
To material consumed By sale
(o/s+ purchases – c/s) Wine 3870
Wine(1239+1881-1197) 1923 Spirit 4335
Spirits 2235 Beer 1863
Beer 1143 Minerals 2160
Mineral 840 Cigars and cigarettes 390
Cigars and cigarettes 285
Provision and store 5262
Meat 3627
Fish and poultry 3960
To wages 4305 By charges
Meals 23829
Room 9375
Fire in bed room 582
Washing 219
To coal and gas 2211
To laundry 951
To salary 2400
To rent 1713
To electric lighting 1128
To general expenses 1710
To repairs renewal and depreciation
Premises 348
Furniture 660
Glass and china 609
Linen 390
Cutlery and plates 207
To Net profit to balance sheet 10716
46,623 46,623
Balance sheet

Liabilities Rs Assets Rs
Capital 56865 Fixed Asset
Premises 46800
Furniture 8934
Glass and china 1101
Linen 840
Cutlery and plates 390
Profit during the year 10716 Stock
Wine 1197
Spirits 333
Beer 174
Mineral 357
Cigars and cigarettes 69
Provision and store 141
coal 99

Sundry creditors 2575 Visitors account 1354

Cash at bank 8148
Cash in hand 219
70,156 70,156

2) A hotel proprietor has two departments , apartment and meals department. The following
is the trial balance of his business

Particulars Dr Cr
Income from apartment department 92,000
Income from meal department 64,000
Provisions purchases 31,000
Stock of provision in the beginning 2,040
Cash in hand and at bank 20,000
Capital 4,40,000
Customers debit balance 1,600
Suppliers account 19,600
Building (1/10 is used for meal department ) 4,20,000
Provision for depreciation on building 48,000
Furniture and equipment’s 1,20,000
General expenses 54,820
Interest 2,260
Interest accrued 400
Income tax 800
Life assurance premium 3,200
Wages 12,000
6,65,860 6,65,860
Additional information
1. Servants in the apartment department had occupied a room worth Rs.2,400 and took
meals worth Rs.1,200. Similarly servant in the meals department had occupied a room
worth Rs.3,000and took meals worth Rs.1,800
2. Wages are charged in proportion of ½ to the apartment department ¼ to the provision
department and remaining to general profit and loss account
3. Increase provision for depreciation on building to Rs.60,000
4. A sum of rs. 16,000 representing accommodation Rs.4,800and meals Rs.11,200 to be
charged to the proprietor of the hotel
You are required to prepare final accounts for the year.

Profit and loss account

Particulars Apartment Meals Particulars Apartment Meals

department department department department
To opening stock - 2,040 By income 92,000 64,000
To purchases - 31,000 By adjustment 5,400 3,000
To wages 6,000 3,000 for income
To depreciation 3,600 4,800 By proprietor 4,800 11,200
To departmental 10,800 1,200 account
profit 81,800 36,160
1,02,200 78,200 1,02,200 78,200

General profit and loss account

Particulars Rs Particulars Rs
To wages 3,000 By profit b/d
To general expense 54,820 Apartment 81,800
To net profit 62,400 Meals 36,160
By interest 2,260
1,20,220 1,20,220

Balance sheet

Liabilities Rs Assets Rs
Capital 4,82,400 Building 3,60,000
Suppliers account 19,600 Furniture 1,20,000
Customers account 1,600
Interest accrued 400
Cash and bank balance 20,000
5,02,000 5,02,000