Unit II

Front Office Accounting

 Accounting Fundamental

An effective guest accounting system consist of tasks
performed during each stage of Guest Cycle.

During Pre Arrival, a guest account system captures data

related to the type of reservation guarantee and tracks pre
payment and advance deposits. During occupancy, a guest
account system tracks authorized guest purchase. Finally,
a guest account system ensures payment for outstanding
goods and services at the time of check out.
 Accounting Fundamental

The Financial transaction of Non Guest may also be
processed within the parameter of Front Office
Accounting.

In brief F.O. Accounting System :-

 Creates and maintains an accurate accounting record for each
guest or non guest account.
 Track financial transaction throughout the guest cycle.
 Ensures internal control over cash and non cash transaction
 Accounts

An account is a form on which financial
data are accumulated and summarized. An
account may be imagined as a bin or
container that store the results of various
business transaction. In its simplest written
form, an account resembles letter T
 
Account Name

CHARGE PAYMENT
 T Account

 This form of recording (as shown in previous slide) is
called as T Account. For a front office account charges
are increase in the account balance and are entered on the
left side of a T account and payment are decrease in the
account balance and are entered on the right side of the T.
 The account balance is calculated by subtracting the T
account Right total from the left side total.
 Hotel Credit Management

 The hotel industry is the only business where the guest enjoy the
benefit of credit facility right from the time he comes to the hotel and
where the business man whose primary objective is to collect revenue
when the transaction is over is deprived of that and gets benefit only
on or after the departure of the guest and that too sometimes after a
period of 30-40 days in normal course.
 This results in the blocking of money and hence creates a situation
of greater risk and this demands higher investment and hence it is
important that the hotel takes some definite and concrete steps to
ensure that the guest accounts will be settled in full at the agreed time
therefore protecting the hotel from bankruptcy due to bad debts.
 Hotel Credit Management

The hotel should control the credit of its guest to
also insure a healthy cash flow. Cash flow means the
money which moves in and out of the business. The
term credit control refers to the various measures
taken by the hotel to ensure that the guest settle
their account in full either themselves or someone
else on their behalf {which may be a credit card
company, airline company, corporate office, a travel
agent or person}within a specified period of time.
 Steps to control credit

Various steps are to be taken by different front office personnel at different
stages of the guest cycle that will help in credit control.
Credit control procedures used for different guests at the front desk during
check-in:

Guest paying by credit card:

 Guest is required at the time of check-in to present his credit card
 Credit card is imprinted
 Name on the card is tallied with the name on registration card
 Check expiry date of the card
 Check the hotlist to check that it is not blacklisted
 Check that the hotel accepts the type of credit card presented by the guest
 Steps to control credit

Guest paying by travel agent voucher:
Guest presents travel agents voucher at the time of check in.
These are prepaid vouchers.
These are then tallied with the record copy the travel agent
has sent the hotel in advance at the time of reservation.
The receptionist will then attach this voucher to the guest
registration card and then sends it to the cashier who will
open the folio and mark the instruction as required on the
folio.
 Steps to control credit

Tracking Transaction :
Charge purchase transaction must be correctly documented in order
for the front office to properly maintain account. Front office staff
relies on accounting voucher to provide a reliable set of
documentation. A major concern of the Front office accounting
process involves the communication of transactional information from
remote points of sale to the front office. From an accounting
perspective, nothing happens until a transaction occurs. For this
reason, the front office accounting system can be described as a
transactional accounting system.
 Steps to control credit

Cash payment :
Cash payments are made at the front desk to reduce a guest’s
net outstanding balance and are posted as credits to the
guest or non guest account, thereby decreasing the balance
of the account. The front office may use the cash voucher to
support such transaction.
When cash is paid for goods or services at a location other
than front desk, no entry will appear in account folio.
 Account Correction

An account correction transaction resolves a posting
error on a folio. By definition, an a/c correction is
made on the same day the error is made before the
close of business. An account correction can either
increase or decrease an account balance, depending on
the error. A correction voucher is used to document an
account correction transaction.
 Account Allowance

An account allowance involves two types of transactions. One type of
allowance is a decrease in a folio balance for such purpose as
compensation for poor service. Another type of account allowance
corrects a posting error detected after the close of business. Such an
error will be separately entered into the accounting records of the
appropriate revenue centers thereby also correcting their accounting
records.
An account allowance is documented by the use of an allowance
voucher. Allowance voucher normally requires management approval.
 Account Transfer

Account transfer requires two different account and tend to
have off setting impacts on subsequent account balances.
For Example :-
When one guest offers to pay a charge posted to another guest’s
folio, the charge will need to be transferred from first account to
second account. A transfer voucher supports the reduction in
balance on the originating folio and the increase in balance on
the destination folio. An account transfer may also occur when
a separating guest uses a credit card to settle his or her account.
The guest’s outstanding account balance is transferred form a
guest account to a non guest account through the use of a
transfer voucher.
 Foreign exchange

A hotel has to follow following steps in order to exchange the foreign
currency :
 A hotel has to obtain license to exchange foreign currency.
 To exchange foreign currency there has to be an authorized personnel
to deal foreign exchange transaction. (Front office cashier)
 Foreign exchange is done only in local currency
 The rate of exchange must be exhibited significantly at the exchange
point.
 Hotel will extend foreign currency exchange only for the resident
guest of the hotel
 Foreign exchange

Central Bank has fixed certain actions and procedure which every hotel has
to follow when receiving foreign exchange.
These are as follows :-
 The front office cashier asks the guest for passport and will verify some
identification from passport like name and photo, place and date of issue,
date of expiry of passport.
 He should ask the room no. of the guest to confirm the status of being
resident.
 Compute the total amount of local currency to be paid by multiplying the
total amount of foreign currency by the exchange rate.
 Fill the details in foreign exchange encashment certificate. These certificate
comes in serial numbered book for better control.
 Foreign exchange

 Request the guest to sign foreign exchange encashment
certificate and compare the sign with passport sign.
 Provide the total amount of local currency with the original
foreign currency encashment certificate to the guest.
 Leave the other copy in the certificate book.
 Fill the details in the record of foreign currency transacted,
which is a control sheet of all the foreign currency transactions
in a sheet.
Foreign Currency Encashment Certificate

 Foreign Currency Control Sheet

Hotel ABC
 
Foreign Currency control sheet

Sr. No. Date Name of Nationality Passport Foreign Currency Rate Rupee
Guest No. Equivalent

          Pound US Euro Other    

Sterling Dollar

                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
 Authorized Money Changer

 The Reserve Bank of India under Section 10 of the Foreign Exchange
Management Act, 1999 may provide license to work as Authorized Money
Changers (AMCs).

 An AMC may either be a Full Fledged Money Changer (FFMC) or a Restricted

Money Changer (RMC).

 FFMCs are authorized to purchase foreign exchange from residents and non-

residents visiting India, and to sell foreign exchange for certain approved
purposes.

 RMCs are authorized only to purchase foreign exchange from residents and non-
residents. 
 Accounting for Guest Charges

Guest charges can include:

 Guest room charges

 Taxes related to the sale of guest rooms
 Guest-initiated room telephone charges
 Food and beverage and other product/services purchases
charged to the guest’s room
 Charges for any other goods and services directly interfaced
with the PMS
 Accounting for Guest Charges

 Generally Accepted Accounting Principles
(GAAPs): Standards and procedures that have been
adopted by those responsible for preparing business
financial statements for the purpose of ensuring
uniformity.
 Accounting: The process of summarizing and
reporting financial transactions.
 Bookkeeping: The process of initially recording
financial transactions.
 Accounting for Guest Charges

 Assets: Items owned by a business including cash on
hand, money in checking or other accounts, money owed
to the business, inventories, property, equipment, and
furnishings.
 Liabilities: Debts owed by a business.
 Owner’s Equity: What remains after subtracting what
the business owes others (its liabilities) from what the
business owns (its assets).
 Accounting for Guest Charges

Uniform System of Accounts for the Lodging
Industry (USALI): A standard set of accounting
procedures used to record a hotel’s financial
transactions and condition.
 Accounting for Guest Charges

Account: A device used to show increases or
decreases in the asset, liability, or owner’s
equity sections of the fundamental
accounting equation. Because of their shape,
accountants refer to these as “T” accounts.
.
 Accounting for Guest Charges

 Accounts Receivable (AR): Money owed to
a hotel.
 Accounts Payable (AP): Money owed by a
hotel.
 Retained Earnings: Profits earned but not
paid (disbursed) to the business owners.
 Accounting for Guest Charges

Double Entry Accounting: A system of
recording financial transactions in a way
that maintains the equality of the
fundamental accounting equation:
Assets = Liabilities + Owner’s Equity
 Accounting for Guest Charges

Debit: An accounting transaction that records
a change on the left side of a “T” account in
an asset, liability, or owner’s equity account.
Credit: An accounting transaction that records
a change on the right side of a “T” account
in an asset, liability, or owner’s equity
account.
 Front Office Accounting

Front Office Accounting System: The
automated and/or manual data collection
and reporting system that summarizes
and documents the financial activities of
a front office.
 Front Office Accounting

 Guest Ledger: The set of accounts used to record
charges to and payments from the hotel’s
registered guests.
 City Ledger: The set of accounts used to record
charges to and payments from the hotel’s non-
registered guests.
 General Ledger: The primary ledger that
contains all of a hotel’s accounts and that is used
to create its income (profit and loss) statement.
 Front Office Accounting

Adjusting accounts can be necessary as a result of:
 Posting Errors
 Hotel-related problems
 Guest-related problems

Total Monthly Allowances and Adjustments = Total Room

Room Allowance and Adjustment % Revenue
 Back Office Accounting

 Back Office Accounting: The process of
summarizing and documenting the financial
activities and condition of the entire hotel.

 Controller: The individual (or department)

in a hotel responsible for maintaining the
back office accounting system.
 Back Office Accounting

 Settlement (Account): The collection of a
payment for an outstanding account balance.
Settlement may involve the guest paying cash or
charging the account balance to a valid payment
card or another hotel-approved account.
 House Account: An account whose entries are
assessed to another hotel entity.
 Back Office Accounting

Payment card processing:


1. Initiation
Address Verification Service (AVS): A company that, for a
fee, allows access to its database of current addresses.
2. Authorization
Chargeback: Payment card charges disallowed (reversed)
when a cardholder successfully protests the legitimacy of the
charge or because the hotel made an error in processing it.
3. Completion of transaction
4. Receipt of funds
 Back Office Accounting

 Establishing credit limits:
 Block (Funds): The amount by which a card’s
available credit (if a credit card) or balance (if a debit
card) is reduced; also called a “hold.”
 Monitoring credit limits
 Managing Guest Credit

 Establishing credit limits:
 Block (Funds): The amount by which a card’s
available credit (if a credit card) or balance (if a debit
card) is reduced; also called a “hold.”
 Monitoring credit limits
 Managing the Check-Out Process

 Departure List: A report, by name and
room number, of all guests scheduled to
leave the hotel on a specific date.
 Late Check-out: An arrangement that
allows a guest scheduled to leave the hotel to
maintain access to his/her room after the
standard check-out time.
 Managing the Check-Out Process

Bucket Check: Industry jargon for a
systematic examination of guests’ folios to
ensure the accuracy of guest information.
Bucket checks typically include rate
verification, credit monitoring, and
confirmation of departure date and guest
room assignment.
 Managing the Check-Out Process

Check-out fundamentals:

 Creation of departure list
 Confirmation of guest identity
 Quality of stay inquiry
 Property exchange
 Final data entry/posting of charges
 Guest folio inspection
 Processing guest payment
 Future reservation inquiry
 Filing documentation
 Revision of room status
 Managing the Check-Out Process

Account settlement methods:
 Cash and check
 Payment card
 Direct bill
 Combined settlement
 No-show billing
 Managing the Check-Out Process

Check-out variations:

 Late check-out charges
 Express Check-out: Any number of methods of
guest-initiated check-out that do not require
guests to be physically present at the hotel’s front
desk for folio payment.
 Unpaid accounts:
 SOF: Short for “Signature on File”; refers to a
signature obtained from a guest at check-in.
 Managing the Check-Out Process

Other check-out challenges:
 Room damage assessments
 Group allowance strategies
 Post check-out complaint adjustments