FINANCIAL ANALYSIS , CASH RECORD AND CASH CONTROL

INTRODUCTION
A financial statement is an official document of the firm, which explores the entire financial
information of the firm. The main aim of the financial statement is to provide information and
understand the financial aspects of the firm. Hence, preparation of the financial statement is
important as much as the financial decisions.

MEANING AND DEFINITION

According to Hamptors John, the financial statement is an organized collection of data according to
logical and consistent accounting procedures. Its purpose is to convey an understanding of financial
aspects of a business firm. It may show a position at a moment of time as in the case of a balance-
sheet or may reveal a service of activities over a given period of time, as in the case of an income
statement.
Financial statements are the summary of the accounting process, which, provides useful
information to both internal and external parties. John N. Nyer also defines it “Financial statements
provide a summary of the accounting of a business enterprise, the balance-sheet reflecting the assets,
liabilities and capital as on a certain data and the income statement showing the results of operations
during a certain period”.
Financial statements generally consist of two important statements:
(i) The income statement or profit and loss account.
(ii) Balance sheet or the position statement.
A part from that, the business concern also prepares some of the other parts of statements, which
are very useful to the internal purpose such as:
(i) Statement of changes in owner’s equity.
(ii) Statement of changes in financial position.
Financial Statement

Income Statement Position Statement

Statement of changes Statement of changes

in Owner's Equity in Financial Position

Fig. 2.1 Financial Statement

Income Statement
Income statement is also called as profit and loss account, which reflects the operational position of
the firm during a particular period. Normally it consists of one accounting year. It determines the
entire operational performance of the concern like total revenue generated and expenses incurred for
earning that revenue.
Income statement helps to ascertain the gross profit and net profit of the concern. Gross profit is
determined by preparation of trading or manufacturing a/c and net profit is determined by preparation
of profit and loss account.
Position Statement
Position statement is also called as balance sheet, which reflects the financial position of the firm at
the end of the financial year.
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Position statement helps to ascertain and understand the total assets, liabilities and capital of the
firm. One can understand the strength and weakness of the concern with the help of the position
statement.
Statement of Changes in Owner’s Equity
It is also called as statement of retained earnings. This statement provides information about the
changes or position of owner’s equity in the company. How the retained earnings are employed in the
business concern. Nowadays, preparation of this statement is not popular and nobody is going to
prepare the separate statement of changes in owner’s equity.

Statement of Changes in Financial Position

Income statement and position statement shows only about the position of the finance, hence it can’t
measure the actual position of the financial statement. Statement of changes in financial position
helps to understand the changes in financial position from one period to another period.
Statement of changes in financial position involves two important areas such as fund flow
statement which involves the changes in working capital position and cash flow statement which
involves the changes in cash position.

TYPES OF FINANCIAL STATEMENT ANALYSIS

Analysis of Financial Statement is also necessary to understand the financial positions during a
particular period. According to Myres, “Financial statement analysis is largely a study of the
relationship among the various financial factors in a business as disclosed by a single set of statements
and a study of the trend of these factors as shown in a series of statements”.
Analysis of financial statement may be broadly classified into two important types on the basis
of material used and methods of operations.
Types of Financial
Analysis

On the basis of On the basis of

Materials Used Methods of Operations

External Internal Horizontal Vertical

Analysis Analysis Analysis Analysis

Fig. 2.2 Types of Financial Statement Analysis

1. Based on Material Used

Based on the material used, financial statement analysis may be classified into two major
types such as External analysis and internal analysis.
A. External Analysis
Outsiders of the business concern do normally external analyses but they are indirectly
involved in the business concern such as investors, creditors, government organizations
and other credit agencies. External analysis is very much useful to understand the
financial and operational position of the business concern. External analysis mainly
depends on the published financial statement of the concern. This analysis provides
only limited information about the business concern.
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B. Internal Analysis
The company itself does disclose some of the valuable informations to the business
concern in this type of analysis. This analysis is used to understand the operational
performances of each and every department and unit of the business concern. Internal
analysis helps to take decisions regarding achieving the goals of the business concern.
2. Based on Method of Operation
Based on the methods of operation, financial statement analysis may be classified into two
major types such as horizontal analysis and vertical analysis.
A. Horizontal Analysis
Under the horizontal analysis, financial statements are compared with several years
and based on that, a firm may take decisions. Normally, the current year’s figures are
compared with the base year (base year is consider as 100) and how the financial
information are changed from one year to another. This analysis is also called as
dynamic analysis.
B. Vertical Analysis
Under the vertical analysis, financial statements measure the quantities relationship of
the various items in the financial statement on a particular period. It is also called as
static analysis, because, this analysis helps to determine the relationship with various
items appeared in the financial statement. For example, a sale is assumed as 100 and
other items are converted into sales figures.

TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is interpreted mainly to determine the financial and operational
performance of the business concern. A number of methods or techniques are used to analyse the
financial statement of the business concern. The following are the common methods or techniques,
which are widely used by the business concern.

Fig. 2.3 Techniques of Financial Statement Analysis

1. Comparative Statement Analysis

A. Comparative Income Statement Analysis B.
Comparative Position Statement Analysis
2. Trend Analysis
3. Common Size Analysis
4. Fund Flow Statement
5. Cash Flow Statement
6. Ratio Analysis
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Comparative Statement Analysis
Comparative statement analysis is an analysis of financial statement at different period of time. This
statement helps to understand the comparative position of financial and operational performance at
different period of time.
Comparative financial statements again classified into two major parts such as comparative
balance sheet analysis and comparative profit and loss account analysis.
Comparative Balance Sheet Analysis
Comparative balance sheet analysis concentrates only the balance sheet of the concern at different
period of time. Under this analysis the balance sheets are compared with previous year’s figures or
one-year balance sheet figures are compared with other years. Comparative balance sheet analysis
may be horizontal or vertical basis. This type of analysis helps to understand the real financial
position of the concern as well as how the assets, liabilities and capitals are placed during a particular
period.

Comparative Profit and Loss Account Analysis

Another comparative financial statement analysis is comparative profit and loss account analysis.
Under this analysis, only profit and loss account is taken to compare with previous year’s figure or
compare within the statement. This analysis helps to understand the operational performance of the
business concern in a given period. It may be analyzed on horizontal basis or vertical basis.
Trend Analysis
The financial statements may be analysed by computing trends of series of information. It may be
upward or downward directions which involve the percentage relationship of each and every item of
the statement with the common value of 100%. Trend analysis helps to understand the trend
relationship with various items, which appear in the financial statements. These percentages may also
be taken as index number showing relative changes in the financial information resulting with the
various period of time. In this analysis, only major items are considered for calculating the trend
percentage.
Common Size Analysis
Another important financial statement analysis techniques are common size analysis in which figures
reported are converted into percentage to some common base. In the balance sheet the total assets
figures is assumed to be 100 and all figures are expressed as a percentage of this total. It is one of the
simplest methods of financial statement analysis, which reflects the relationship of each and every
item with the base value of 100%.
FUNDS FLOW STATEMENT
Funds flow statement is one of the important tools, which is used in many ways. It helps to understand
the changes in the financial position of a business enterprise between the beginning and ending
financial statement dates. It is also called as statement of sources and uses of funds.
Institute of Cost and Works Accounts of India, funds flow statement is defined as “a statement
prospective or retrospective, setting out the sources and application of the funds of an enterprise. The
purpose of the statement is to indicate clearly the requirement of funds and how they are proposed to
be raised and the efficient utilization and application of the same”.
CASH FLOW STATEMENT
Cash flow statement is a statement which shows the sources of cash inflow and uses of cash out-flow
of the business concern during a particular period of time. It is the statement, which involves only
short-term financial position of the business concern. Cash flow statement provides a summary of
operating, investment and financing cash flows and reconciles them with changes in its cash and cash
equivalents such as marketable securities.
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RATIO ANALYSIS
Ratio analysis is a commonly used tool of financial statement analysis. Ratio is a mathematical
relationship between one number to another number. Ratio is used as an index for evaluating the
financial performance of the business concern. An accounting ratio shows the mathematical
relationship between two figures, which have meaningful relation with each other. Ratio can be
classified into various types. Classification from the point of view of financial management is as
follows:
● Liquidity Ratio ● Activity Ratio
● Solvency Ratio
● Profitability Ratio

Liquidity Ratio
It is also called as short-term ratio. This ratio helps to understand the liquidity in a business which is
the potential ability to meet current obligations. This ratio expresses the relationship between current
assets and current assets of the business concern during a particular period. The following are the
major liquidity ratio:
S. No. Ratio Formula Significant Ratio
= Current Assets
1. Current Ratio 2:1
CurrentLiability
2. Quick Ratio = Quick Assets 1:1

Quick / Current
Liability
Activity Ratio
It is also called as turnover ratio. This ratio measures the efficiency of the current assets and
liabilities in the business concern during a particular period. This ratio is helpful to understand the
performance of the business concern. Some of the activity ratios are given below:
S. No. Ratio Formula
CostofSales

1. Stock Turnover Ratio Average Inventory

CreditSales

2. Debtors Turnover Ratio AverageDebtors

Credit Purchase

3. Creditors Turnover Ratio AverageCredit

Sales
4. Working Capital Turnover Ratio
NetWorkingCapital
Solvency Ratio
It is also called as leverage ratio, which measures the long-term obligation of the business concern.
This ratio helps to understand, how the long-term funds are used in the business concern. Some of the
solvency ratios are given below:
S. No Ratio Formula
External Equity
1. Debt-Equity Ratio Internal Equity
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Shareholder / Shareholder 's Fund
2. Proprietary Ratio
Total Assets
EBIT
3. Interest Coverage Ratio
Fixed Interest Charges
Profitability Ratio
Profitability ratio helps to measure the profitability position of the business concern. Some of the
major profitability ratios are given below.
S. No Ratio Formula
GrossProfit
×100
1. Gross Profit Ratio NetSales
Net Profit after tax
×10
2. Net Profit Ratio
0
Net Sales
Operating Net Profit
×1
3. Operating Profit Ratio
00
Sales
Net Profit after tax
4. Return in Investment ×100
Shareholder Fund

EBIT- Earnings before interest and taxes

Recording the sales process

How to record transactions in the sales process
Generating sales is the lifeblood of any business – without revenue, a business will not
be able to pay their debts as they fall due and will not remain a going concern. In talking
about the sales process, we refer to not only making the sale, but also receiving
payment from the customer.
In this section we will examine a number of different sales-related processes including:
1. Sales for cash
2. Sales made on credit
3. Customer repayments for sales on credit
4. Sales made in advance
5. Completing the job for sales made in advance
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1. Sales for cash
For most retail businesses, this is the most common form of revenue generation. And
whether you receive physical or electronic cash, it is all the same Cash account in our
transaction recording. If $350 worth of goods are sold for cash, the transaction would be
recorded as follows:

The accounting equation balances because it is increasing by $350 on both

sides.
2. Sales made on credit
For many wholesale businesses, sales are made on credit. That is, the business has
regular customers that it trusts to sell goods and receive payment at a later date. That
later date is usually within 30 days, though in some industries it can be up to 90 days.
If $500 worth of goods are sold on credit, the transaction would be recorded as follows:

The asset of accounts receivable increases – future value will be gained when the
accounts receivable is exchanged for cash – and revenue increases, therefore the
equation is balanced.
3. Customer repayments for sales on credit
Customers who purchase goods on credit will (hopefully) make their repayments within
the timeframe set by the business. We’ll get into what happens when businesses do not
pay for sales on credit in our 2nd text, Accounting, Business and Society.
For the previous example, when the customer pays their accounts receivable of $500 in
full, the transaction would be recorded as follows:
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Note that there is no change in Revenue. It has already been recorded. Now all that is
happening in the business is that we are transforming one asset (Accounts Receivable)
into another (Cash). The equation is balanced because the total change in assets is $0
and the change in liabilities and equity is also $0.
4. Sales made in advance
It can be common for a popular business to ask customers to pay in advance. This may
be for a custom order, or for a good that is in high demand.
A customer orders a $2,000 item that will be delivered in 2 months time. The transaction
would be recorded as follows:

We’ve increased our assets by receiving cash, but we’ve also generated an obligation
(unearned revenue liability) to provide the item to the customer in the future.
Technically, when you purchase goods through an online store – you pay for those
goods in advance. It takes time for the business to get your order ready and then ship
your order to you. If you want to be really accounting nerdy – the business doesn’t
technically earn the revenue until your order is delivered to you!
5. Completing the job for sales made in advance
Imagine it is now 2 months later and we now have the item that the customer paid in
advance for and we deliver it to them. The transaction would be recorded as follows:

Note that there is no change to our assets. The cash is still in our bank account and
nothing has changed. When we deliver the item to the customer, we are fulfilling our
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obligation (hence the decrease of $2000 in unearned revenue) and can now recognise
the revenue of $2000. The equation balances because the liabilities and equity side
comes to a sum of $0 and the change in assets is also $0.

Introduction to Cash Management

Management of cash is one of the most important areas of overall
working capital management due to the fact that cash is the most
liquid type of current assets. As such it is the responsibility of the
finance function to see that the various functional areas of the
business have sufficient cash whenever they require the same.

At the same time, it has also to be ensured that the funds are not
blocked in the form of idle cash, as the cash remaining idle also
involves cost in the form of interest cost and opportunity cost. As
such the management of cash has to find a mean between these two
extremes of shortage of cash as well as idle cash.

2. Nature of Cash
Cash is the medium of exchange for purchase of goods and services
and for discharging liabilities.
In cash management, the term has been used in two
senses:
(a) Narrow Sense – Under this cash covers currency and generally
accepted equivalents of cash, viz., cheques, demand drafts and
banks demand deposits.
(b) Broad Sense – Here, cash includes not only the above stated but
also near cash assets. They are Bank time deposits and marketable
securities.
3. Objectives of Cash Management
The prime objective of cash management is to channelize the flow of
cash from the surplus to deficit units to maintain the appropriate
liquidity position of the organization. In addition, the objectives of
cash management can be broadly subdivided into two heads –
maintaining the inflow and outflow of cash and sustaining the cash
position held by the organization to meet the current obligations.

Other important objectives of cash management are

discussed as follows:
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i. Planning of Cash Flows – Refers to scheduling the cash inflow

and outflow of an organization over a period of time. The planning
of cash flow helps in maintaining an adequate amount of capital to
finance day-to-day- functions of the organization.

ii. Synchronizing Cash Flows – Refers to developing

equilibrium between inflow and outflow of cash in the business. If
the amount of cash receipts (inflow) is equal to the cash payment
(outflow) then there would be no requirement of holding extra cash.

iii. Optimizing Cash Holding – Refers to determining the

appropriate amount of cash to be kept in the business to meet the
contingency needs. It is the duty of the finance manager to decide
the optimal cash holding to avoid any excess or deficit of cash.

iv. Investing Idle Cash – Refers to utilizing the idle cash kept in
the business for short-term investment purposes. An organization
can invest the idle cash in marketable securities for a short duration
to earn a reasonable rate of return. The marketable securities are
highly liquid in nature and can be easily converted into cash at a
short notice.

4. Importance of Cash Management

Cash management is one of the critical areas of working capital
management and assumes greater significance because it is the
most liquid asset used to satisfy the firm’s obligations but it is a
sterile asset as it does not yield anything. Therefore, the finance
manager has to manage cash so that the firm maintains its liquidity
position without jeopardizing profitability.

Problem of prognosticating cash flows accurately and absence of

perfect coincidence between the inflows and outflows of cash add to
the significance of cash management. In view of the above, at one
time a firm may experience dearth of cash because payments of
taxes, dividends, seasonal inventory, etc., build up while at other
times, it may have surfeit of cash stemming out of large cash sales
and quick collections of receivables.
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It is interesting to observe that in real life a finance manager spends
considerable time managing cash which constitutes relatively a
small proportion of a firm’s current assets. This is why in recent
years a number of new techniques have been evolved to minimize
cash holding of the firm.

5. Scope of Cash Management

Cash management refers to a systematic way of handling cash
inflows and outflows resulting from business operations.
Understanding the basic concepts of cash management will help
business enterprises to plan for the unforeseen eventualities that
nearly every business faces.

1. Cash Planning:
Cash planning is a systematic way of forecasting the cash
requirements for a given period with an objective to maintain
adequate cash balance in hand, sufficient to meet the payments and
obligations as and when they mature. Thus it includes forecasting of
cash inflows and cash outflows. A business must generate a positive
cash flow, meaning that long-term cash outflows must be less than
long-term cash inflows.

2. Managing Cash Flows:

Cash planning is a systematic way of forecasting the cash
requirements for a given period with an objective to maintain
adequate cash balance in hand, sufficient to meet the payments and
obligations as and when they mature. Thus it includes forecasting of
cash inflows and cash outflows. Managing cash inflows is the task of
implementing policies and procedures regarding inflow and outflow
of cash. It includes short term investment plans when cash in
surplus and borrowing programmes during the days of cash deficit.

3. Optimum Cash Level:

Cash optimization here signifies to make as perfect or effective as
possible. Most enterprises focus on cash flows but find them hard to
control. The problem is not so much predicting investments and
payments to creditors and owners but rather being able to optimize
and control cash flows related to the day-to-day operation of the
 FINANCIAL ANALYSIS , CASH RECORD AND CASH CONTROL
enterprise. Effective cashflow is essential for survival, profit and
sound business.

4. Investing Idle Cash:

If the business has surplus cash balances available during certain
periods of time, then it should consider investing in short-term
marketable securities. On the other hand if business is consistently
generating a cash surplus, then it should consider longer-term and
higher yield investments. However a business need to be cautious
and maintain a certain level of cash on hand to cover any
unforeseen circumstances, or to take advantage of prompt payment
discounts, as mentioned above.

MOTIVE FOR HOLDING CASH

1. Transactionary motive – Cash is needed to meet day to day

cash requirements and to finance transaction in the
normalcourse of business.

2. Precautionary motive – It is the motive for holding cash as

a cushion to meet unexpected contingent needs. Cash is
needed to meet the unexpected situation like strikes,natural
calamities.

3. Speculative motive – A business may decide to hold cash in

order to be in a position to exploit opportunity as and when
they arise. Example- raw material at reduced cost, purchases
at favorable prices.

4. Compensating motive – It is motive for holding cash to

compensate banks for providing certain services or loans.

Cash operating cycle

The cash operating cycle (also known as the working capital cycle or the cash
conversion cycle) is the number of days between paying suppliers and receiving
cash from sales.

Cash operating cycle = Inventory days + Receivables days – Payables days.

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What is the cash conversion cycle?

The cash conversion cycle (CCC) is a working capital metric that measures the number of
days a company needs to convert its inventory investment into cash via the sales process. A
shorter CCC is considered ‘good’ as it denotes that the company has less cash tied up in its
accounts receivable and inventory, whereas a longer CCC means that the company takes
more time to generate cash.

CCC helps estimate the operational efficiency and financial performance of a company.
Therefore, calculating the cash cycle is essential for companies that wish to track their cash
flow, sales realization, and inventory management.

How to calculate the cash conversion cycle?

The cash conversion cycle covers three stages of a company’s sales cycle—current inventory
sales, cash collection from the current sales, and payables for outsourced goods and services.

The CCC can be calculated with the help of three working capital metrics. These are:

 Days Inventory Outstanding (DIO)

 Days Sales Outstanding (DSO)
 Days Payable Outstanding (DPO)

DIO and DSO are short-term assets that can be held for a year or less, whereas DPO is
classified as a liability.
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Here,

 DIO= (Average inventory/Cost of goods sold x number of days)

 DSO= (Accounts receivable x number of days/total credit sales)
 DPO= (Accounts payable x number of days/cost of goods sold)

NIGHT AUDIT

Night auditing is actually the audit process of taking

inventory of the day’s work. In other words, it is the
activity of checking and confirming that whatever
transaction has been done during the day is correct and
complete. Any mistakes made during the day are
corrected and balanced. The audit is done during night
and hence it is called as ‘Night Auditing’.
What is the night audit process?
The night audit, by definition, is a daily review of guest
account transactions recorded at the frontdesk against
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revenue transactions. This accounting practice
guarantees that all departments of the hotel are working
in sync. It also ensures reliability and thoroughness of
front office accounting. Since the front office audit also
includes active non-guest accounts.
A successful night audit process in a hotel balances
guest and non-guest accounts. It also maintains a
record of account statements, helps to appropriately
monitor account credit and delivers timely reports to the
management. Regular night audits increase the
likelihood of correct account settlement.
Before the introduction of automated front office
systems, the most preferred time to perform the audit
was late evening or early morning hours. Since guest
interaction was reduced to a minimum and front office
auditors could work with zero interruption, it came to be
known as “night audit”.
Who is a Night Auditor?
Carrying out the night audit requires attention to detail,
especially with accounting. A night auditor is an
experienced hospitality professional who is familiar with
the nature of cash transactions that affect the front
office accounting system. He is also responsible for any
discrepancies that may arise during the audit. Night
auditors are finance masters with a thorough
understanding of hospitality functions. More often than
not, night auditors are senior front desk personnel like
managers.
Functions of Front Office Audit
The main purpose of front office audit is to verify the
accuracy and completeness of the guest and non-guest
accounts against revenue centre transaction report.
Specifically the front office audit is concerned with the
following functions.
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1. Verifying posted entries to guest and non-guest
accounts.
2. Balancing all front office accounts.
3. Revolving guest credit transactions against
establish limits.
4. Generating operational and managerial reports.
It is important to understand that the front office audit
is concerned with only front office activities. The audit
of food, beverage in room refreshment centre, banquets,
and other revenue outlets is usually the responsibility of
the accounting department and accrue the day after
these outlets close. Very large hotels may require
extensive staffs to audit food, beverage and other
revenue producing department.
In some small hotels, the front office auditor may
perform several parts of a complete audit in addition to
the front office audit since there are fewer revenue
outlets in small hotels and the outlets are less complex.
Cross Checking
Hotel departs may generate paper work to document
transaction. For each revenue center transaction, the
originally revenue center classifies and records the
transaction type (cash, charge, or paid out) and its
monitory value. Front office personnel may review on
online postings to ensure that the appropriate guest or
non-guest electronic folio has been properly accessed.
In addition, revenue centers not interfaced to the front
office system may need to use a voucher to
communicate transactional information to the front
office for posting.
The front office auditor relies on transaction
documentation to prove that proper front office
accounting procedures have been followed. The
auditor’s review of daily posting of daily posting
reconcilers front office accounts with revenue center
and departmental records.
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Credit Monitoring
Software responsible for monitoring the credit limits of
guest and non-guest’s accounts helps maintain the
integrity of the front office accounting system.
Establishing line of credit or credit limits depends on
many factors. Such as credit card company floor limits,
the hotels house limits and the guest’s status or
reputation as a potential credit risk. The front office
auditor should be familiar with these limits and how
they relate to each guest and non-guest account. At
the close of each business day. The front office auditor
should identify guest and non-guest accounts that have
reached or exceeded assigned credit limits (front office
software can flag these accounts automatically).
These accounts are typically called “High balance
accounts” a report lighting high balance accounts or a
high balance report. Should prepare for appropriate
front office management action.
Verify No show
The front office auditor may also be responsible for
cleaning the reservation file or filling and posting
charges to no-show accounts. When initiating the
electronic posting of no-show charges. The front office
auditor must be careful to verify that the reservation
was guaranteed and the guest never registered with the
hotel. Some times duplicate reservations may be made
for a guest or a guest’s name may be misspelled and
another record accidentally created by the front office
staff or system. If these are non identified by front
office reservations staff. The guest may actually arrive
but appear to be a no-show under the second
reservation.

Cancellations
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No show billings must be handled with extreme care. A
front desk agent who does not record cancellation
properly may cause clients to be billed in correctly. In
correct billing may lead the credit card company to
reevaluate its legal agreement and relationship with the
hotel. In correct billing may also cause the hotel to
less the guest’s future business and the business of the
travel agencies or intermediary that guaranteed the
reservation front office staff must at here to establish
no show procedures when handling reservation
cancellation or modification.
What is the Night Audit Posting Formula?
Regardless of how the night audit is conducted, the
basic account posting formula applies:
Previous Balance + Debits – Credits = Net Outstanding
Balance
PB + DR – CR = NOB
Night Auditing process
1. Transfer sheet wise total of all guest ledger
transcripts in to the recapitulate sheet. Total
each column of the recapitulation sheet.
2. Check all paid and endorsed bills of the day
separate out paid bills and endorsed bills.
3. Separate endorsed bills into the once payable in
foreign currency and other payable in Indian
currency.
4. Prepare city ledger transfer with the endorsed
bills. Totals of city ledger transfer must tally with
the total of the transfer credit in the recapitulation
sheet.
5. Prepare master food and beverage sales summary
from the sales summary received from different
food and beverage sales outlets.
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6. Tally room sale prepared by the receptionist in the
night receptionist with the room count and house
count of the recapitulation sheet.
7. Tally room count and house count prepared by the
receptionist with the room count and house count
of the recapitulation sheet.
8. Check all non food and beverage sales summaries
from their sales points with the help of supporting
vouchers credit sales must tally with the total
credit sale indicated for the respective sales point
in the recapitulation sheet.
9. Compare duplicate copies of the restaurant
vouchers with the restaurant sales summaries to
check that entries in cash and credit columns are in
order.
10. Total credit sale of mater food and beverage
sales summary should tally wit the total of the food
sales in the recapitulation sheet.
11. Check all cash receipts with the FOC & MC
cash receipt and their corresponding entries in the
FOC & MC cash books.
12. Check all paid out vouchers and allowance
vouchers. Prepare summary of paid out’s and
allowances. Total of the paid out and allowances
must tally with their respective total in the
recapitulation sheet.
13. Prepare cross sales summary.
14. Prepare cash turn over statement. Total of
cash turned in and impressed should be equal to
the amount of cash in the cash book.
15. Prepare trial balance and ensure that it tallies.
Preparing Night Audit Report
The front office auditor typically prepares reports that
indicates that status of front office activities and
operations. Among those prepared for management
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preview are the final department detail and summary
reports, the daily operations reports, the high balance
report and other reports specific to the property.
Final department detail and summary report are produce
and may be filled along with their source documents for
accounting divisions review. These reports help to
prove that all transactions where properly posted and
accounted for.
The daily operations report summaries the days
business and provides insight into revenues,
receivables, operating statistics and cash transactions
related to the front office. This reports is typically
consider the most important out come of the front
office auditor. The high balance report identities guest
whose charges are approaching an account credit limit
designated by the hold (house limit).
The software of an automates front office system may
be programmed to produce many management reports
on demand. For example, the high balance report may
be produced at any time during the day as a continuing
check on guest transactions and account balances.
Another important report is the daily summary or flash
report. The daily summary provides a snap short of
important operating statistics of the previous day, as
well as month to date totals. The hotel manager find
this summary report very informative and easy to read,
they often read it at the start of a work shift. The daily
summary may also show an accompany and rate
forecast for the new business day, altering
management to changes that may have happened over
night.

FOREIGN CURRENCY ENCASHMENT

1. Request the guest to produce his/her passport and
determine the credentials.
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2. Ask to the guest for his room number.
3. In case of non-residence, request his/her to contact
the lobby manager for his authorization for the
transaction
4. Find out the type of currency to be exchanged and
determine whether it is exchangeable as per
governor banking regulation.
5. Fill in all the details in the foreign exchange
encashment certificate.
6. Request to the guest to sign the travelers cheque
and voucher in person.
7. Compare the signature.
8. Receive the amount of foreign currency in cash or
travelers cheque.
9. Calculate the total amount to paid in local currency
by multiplying the foreign currency amount by the
rate of exchange.
10. Give the original copy of the certificate and the
total amount in local currency to the guest.
11. Attach the second copy of the encashment
certificate to the notes to the traveler’s cheque.
12. Leave the third copy in the book.
13. Fill in the details in reception cashier’s report.

Fill in the details in the foreign currency control sheet

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GUEST WEEKLY BILL

Guest weekly bill is prepared for each guest and is presented on checkout for
settlement. It is called a weekly bill as for one week one bill is prepared. There
is no hard and fast rule that a bill has to be prepared for one week. In case
majority of guests in a hotel stay for three days then one may adopt a three
day bill. If a guest stays beyond three days then another bill is attached. The
guest weekly bill is opened immediately on check in by receptionist. The copy
of the guest registration card is stapled with the weekly bill/folio. The cashier
can refer to guest’s signature on guest registration card and compare his/her
signature with the voucher. If signature tallies then the cashier debits the
voucher to guest’s account otherwise he/she sends the bill back to the outlet
with a remark that signature does not tally. All the weekly bills are placed
numerically in the vertical file and it helps in taking out a particular bill
instantly. The vouchers after posting in the guest weekly bill should be kept in
the bills rack.

GUEST WEEKLY BILL

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HOTEL XYZ

T. NO.

E. MAIL

ROOM NUMBER………………………

NAME OF THE GUEST MR./MS. ………………………………………….

NATIONALITY……………………………………………… DESIGNATION………………………………………………

OFFICE ADDRESS…………………………………… E. MAIL ………….. T. NO. …………..

PERMANENT ADDRESS……………………………. E. MAIL …………… T .NO. …………

DATE AND TIME OF ARRIVAL…………………. DATE AND TIME OF DEPARTURE……

TYPE OF ROOM…………………………….. NUMBER OF PAX……………………………

RATE……………….. ROOM…………………….. PLAN……………………….

BILLING INSTRUCTIONS…………………………….

CREDIT CARD…………………………. CARD NUMBER…………………………….

DATE OF EXPIRY……………………… BOOKED BY…………………………….

Pricing Method of Room:

Market Based Pricing:

Setting a price based on the value of the product in the perception of the customer.

a) As per competition: Arriving at a price based on competing hotel’s rates.

b) Market Tolerance: Checking competing hotel’s best available rates (BAR) for a
room.
c) Rate Cutting: Lowering of rates to increase occupancy levels, especially during
off seasons.
d) Inclusive and non inclusive rates: Charging room rates on the basis of meals
provided on CP / MAP / AP basis.
Cost Based Pricing: It is room rate/ rent determination technique that covers the basic
cost of operation at a given level of service plus the predetermined percentage of return
on investments.
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Selling Price = Total cost + Fixed profit percentage.
Total cost = Fixed cost + variable costs.

Merits of Cost Based Pricing:

 Simple method
 Does not involve examining the market or considering the competition.
 Popular method as it uses internal information that managers can easily obtain.
Following are the two widely used cost based pricing technique.

a) Rule of thumb approach

b) Hubbart Formula
Rule of Thumb Approach: This approach sets the rate of room at Rs 1 for each 100rs
spent in construction and furnishing costs per room assuming 70% occupancy.
– Oldest or traditional method of determining room rate of a hotel.

Drawbacks:

 This approach fails to consider the effects of inflation.

 It also fails to consider the contribution of other facilitie and services towards
the hotel’s desired profitability.
Consumer Profile: It is important to keep in mind the social and financial status of
the guest i.e. paying capacity of the guest.

Consumer’s Profile: It is important to keep in mind the social and financial status of
the guest i.e. paying capacity of guest.

Standards of Service: While deciding the tariff of the room standard of service
should be kept in mind. Standard of service is USP of the hotel and contributes
towards the profitability of the hotel.
Higher is the standards of the service, higher is the room rate.

Hubbart’s Formula:

This is scientific way of determining the room rent. It was developed by Roy
Hubbart in America in the 1940’s.

Steps for calculating Hubbart’s Formula:

Step 1: Calculate total investments

Total investment = Owner’s capital + loans.

Calculate return on investment

Return on investment is the percentage of return that would have been generated
had the amount been invested in the open market.
ROI = Total investment x Return percentage.

Step 2: Calculate Total Expenses:

FINANCIAL ANALYSIS , CASH RECORD AND CASH CONTROL
Total expenses = Operating expenses + Taxes and Insurance + Interest paid on
loans + depreciation on basis of value.

Step 3: Calculate gross operating revenue

Gross operating Revenue = Total expenses + ROI

Step 4: Find revenue generation from room sales only, by subtracting revenue
generated by all sources other than rooms from the gross operating revenue.
Revenue to be generated by room sales to cover cost and fair ROI = Gross operating
revenue – Revenue generated from other sources.

Step 5: Calculate total number of rooms available during the year.

Total number of rooms available during the year = Total number of rooms in the
hotel x Number of days in the year.
- Make the provision for expected average occupancy which is expected during the
year.
- This step will provide total number of rooms available for sale.
- Total number of rooms available after making the provision for average
occupancy = Total no of rooms in the year x occupancy percentage.

Step 6: Calculate Average Daily Rate (ADR)

- This will cover the cost of operations and fair return on investments.
- ADR = Total Room Revenue
--------------------------------
Total Room Sold