Front Office accounting

Contents to be discussed
• Main functions of the front office accounting
system.
• Different types of guest accounts.
• Procedures necessary in creation and
maintenance of guest accounts.
• Front office accounting cycle.
• Posting charges and credits to guest accounts.
• Verification of posting.
4.1. Introduction and its fundamentals
• The objective of a hotel is to provide facilities
and services for guests in return for money, to
make a profit.

• To ensure that all guest bills are properly

settled, hotels need to have an accurate and
constantly updated record of all guest financial
transactions.
 Front office accounting is a system consists
of tasks performed during each stage of
guest cycle.
• Pre-arrival: type of reservation guarantee
and tracks prepayments and advance deposit.
• Arrival : application of room rate and tax.
• Occupancy: tracks authorized guest
purchases.
• Check-out: ensures payment for services and
goods.
 Financial transactions of non-guest account
is also handled by front office accounting.
Function

• Create and maintain accurate and current

records of all guest and non-guest transactions.

• Provide effective internal control by

monitoring credit given to guests and
preventing fraudulent staff practices.

• Provide management information on

department revenue.
• The front office accounting system, must be
able to integrate with the main accounting
system operated by the hotel’s accounts
department.

• The function of the accounts department is to

monitor the financial operation of all areas of
the hotel, i.e. the running costs and earned
revenue.
• Using financial and statistical information
from other departments, the accounting office
produces two main types of reports:

• The operational reports, which are used by

management for daily decision-making.
• The financial reports, which are concerned
with profitability and revenue ( overall
performance of the hotel)
Accounts , folios, vouchers and ledger
• Account is a form on which financial data are
accumulated and summarized.
• Have two entry i.e. debit and credit
• Charges result an increase in account
balance- and entered on left side of a T
account as debit.
• Most guest accounts have a debit balance,
because the guest is in debt to the hotel for
the services which they have had and had
charge to their account.
• Payments result a decrease in the account
balance- and entered on right side of a T
account as credit.

• Account balance = T account right total- T

account left total.

• In fully automated system charges and

payments may be listed on the same column
but the amount paid with –ve sign.
Description of Charges /debit Payments /credit Balance
transactions/account
1.
2.
3.
ABC hotel Address
Telephone
Fax
Name : Mr/s Gibson
Arrival date : 8/5/13
Departure date: 9/5/13
No. in party: 2
Room no. 1032
Rate: $150
Folio no.: 283833

Date Item Description Debit Credit

8/5/13 1 Cash 150
8/5/13 2 Room 150
8/5/13 3 ABC’s bar 10
8/5/13 4 Room service dinner 64
8/5/13 Balance 74
9/5/13 5 Room service breakfast 15

Amount to be settled by a guest 89

6 Cash 89
Balance 00
Type of accounts
1. Guest account
• Is a record of financial transactions between a
resident guest and the hotel.
• Created when a guest check-in.
• Some of the resident guests may have their
accommodation or other charges settled by their
company, while they settle incidentals themselves.
In these situations, the resident guest has to have
two folios:
a. Master folio/account - settled by a company. A
copy of this account is sent to city/sales/ledger.
b. Folio/account for incidentals – settled by a guest.
2. Non-guest account
• Record financial transaction b/n the hotel and non-
resident guests.
E.g. - local business people using hotel facility and service
for
entertainment/business meeting.
- walk-outs - waiting eventual payment/’bad debt’
- Guests who have sent prepayment to guarantee
their bookings,
but not arrived or checked in.
3. Management account
• Are expense account/allowance given by a hotel to the
hotel manager.
• Used to entertain guests/potential clients.
Folio: is a statement of all transactions/debit and
credit/ affecting the balance of a single account.
• When account is created- it is assigned a folio
with a starting balance of zero.
• Then all transactions that increase/debit/ &
decrease/credit/will be recorded.
• At settlement a guest account should be
returned to zero by cash payment, by
transfer to an approved credit card, direct
billing.
Posting: is a process of recording transactions
on an account.
• A transaction is said posted if it is posted on a
proper account, proper location and new
balance has been determined.
• Voucher: is a document detailing a transaction
to be posted at the front office.
• Used to communicate information from POS
to front office.
• POS describes the location at which goods and
services are purchased.
• In hotels it is any hotel department that
collects revenue for its goods and services is
considered a revenue center thus a point of
sale.
• Automated POS system decrease
- number of times posting held
- number of posting error
- save time for posting
- after departure/late/charge
Ledger: a summary grouping of account/a
collection of front office account folio.
• Guest ledger – is a collection of guest account.
• City/non-guest/ ledger- is a set of non-guest
account.
4.2.Creation and maintenance of accounts
• Account is created at the time of registration
or during reservation.
• Account number will be given.
• In non automated accounting system pre-
numbered account /folio is used.
Charge privileges
A guest should have
1. An acceptable credit card
2. A direct billing authorization
• Thus a guest can make a charge purchases.

• Then transactions are communicated

manually by voucher/electronically from
remote POS to front office for posting.
Credit monitoring
• Is done to ensure as guest and non-guest
accounts are within acceptable credit limit.
• House limit: set by front office department/
for direct billing/
• Floor limit: by credit card company.
• High risk/high balance accounts: are
accounts approaching their credit limit.
Account maintenance
PB + Dr – Cr = NOB/ Net Outstanding Balance/
e.g. transactions to be given.
PB + DR –CR = NOB
e.g. a guest registered in July 27; the first debit a
charge purchase of $ 14.25 occurred that
evening in the hotel’s restaurant. Since the
front office received no cash payment/credit,
the 1st net outstanding balance on the account
is $ 14.75.
PB + DR – CR = NOB
$ 0.00 +$ 14.25 - $ 0.00 = $ 14.25
Or
4.3. Handling transactions
1. Cash account
2. Charge purchase
3. Account correction
4. Account allowance
5. Account transfer
6. Cash advance/VPO/
Cash payment
• Made at front desk to reduce a guest’s
outstanding balance
• Posted as credits on guest and non-guest
account so decrease the balance of an
account.
• Cash voucher can be used to support this
transaction.
• Only cash payment transactions that takes
place at the front desk will create entries that
appear on front office account folio.
• E.g using restaurant/buying newspaper at
POSs created, increased, settled and closed at
the POS.
Charge purchase
• Guests receive goods and services from the
hotel but do not pay for them at the time
they are provided.
• Charge purchase transaction/debit/ increase
outstanding balance.
• Supported by charge voucher/account
receivable voucher.
POS of the property and shops/POS/ not
owned/operated by the hotel
• Here voucher having 2 copies one to be sent to
f/o and the second one to stay with the
shopkeeper.
• The voucher should be signed by the guest.
• After payment the voucher will be sent to
accounting department for payment to
shopkeeper.
Account correction
• Resolve posting error on guest account.
• Made on the same day the error is made before
the night audit/the close of business/
• Increase or decrease outstanding balance of a
guest and non-guest account depending on the
error.
The problem may be
• On the amount posted
• Department
• Guest account
e.g. room rate
Account allowance
Involves two types of transactions
1. Decrease in a folio balance for purposes as
compensation for poor service/credit posting/.
2. Corrects a posting error detected after the
close of a business/night audit/

Account transfer
1. Involves two different accounts and tend to
have offsetting impacts on subsequent account
balances.
when a guest offers to pay a charge posted on
another guest’s account
• Transfer voucher supports this.
• Decrease /reduction/ in balance on the
originating account.
• Increase in balance on destination account.
2. Account transfer may occur when a departing
guest wants to settle his account by credit
card.
• Guest account to non-guest account
VPO/visitor paid out /
• Used in a situation where guests’ request
services the hotel does not provide so, the
hotel pay out money on behalf of the guest for
services.
• Entered to a guest account as debit e.g. theater
ticket, sightseeing tour , postage stamps etc.
• Supported by cash advance voucher/paid out
voucher.
In summary, there are two types of posting
• There are two basic types of transactions that
are posted to a guest account: debit entries
and credit entries.
The most common debit items include:
• Room charge
• Restaurant/coffee shop
• Telephone
• Laundry
• Use of hotel facilities e.g. health centers,
business centers and transportation.
Credit entries
• Prepayments
• Payments for part of the bill during stay
• Payment for final settlement
• Amendments to the bill
Front office accounting cycle
• The first important function of the front office
accounting system is to maintain an accurate
and up-to-date record of all the financial
transactions between a hotel and a guest.

• Thus, all outstanding accounts are settled

without delay.
Front office accounting process can be divided
in to three main phases:

• Creation of accounts
• Maintenance of accounts
• Settlement of accounts

• E.g. Fig.
4.4. Internal control and account settlement
Involves
• Tracking transactions documentation.
• Verify account entries and balances
• Identifying vulnerability in the accounting system
Auditing – the process of verifying front office accounting records
for accuracy and completeness.
A primary set of front office accounting control procedures
involves the use of front office cashier banks.
Cash bank is an amount of cash assigned to a cashier, so that
he/she can handle the various transactions that occur during a
particular work shift.
• To make charge when guests settle their account.
• To process paid-outs.
• To provide other cash – related service during the shift.
• The bank limit- is the amount the bank should
have in it when it is issued at the beginning of the
shift.
• At the end of the shift, the cashier typically
separates out the amount of the initial bank, and
• Then places the remaining cash, checks, and
other negotiable items (e.g. paid out voucher)in a
specially designed cash voucher/front office cash
envelope.
• Monetary differences between the money placed
in the front office cash envelope and the cashier’s
net cash, receipts should be noted on the envelope
as overage, shortage, and due backs.
• Net cash receipt – are the amount of cash, checks, and other
negotiable items in the cashier’s drawer, minus the amount of initial
cash bank, plus the paid-outs.
• Overage – occurs when, after the initial bank is removed, the total
of cash, checks, negotiable/certificates that have cash value to a
hotel/ and paid outs in the cash drawer is greater than the net cash
receipts.
• A shortage – occurs when the total of the contents of the drawer is
less than the net cash receipt.
• A due back – occurs when a cashier pays out more than he/she
receives in other words, there is no enough cash in the drawer to
restore the initial bank.
• A special kind of due back may occur when a cashier accepts many
checks and large bills /are not useful for processing
transactions/during a shift.
• The bank limit- the amount the bank should have in
it when it is issued at the beginning of the shift.
• At the end of the shift, the cashier typically separates
out the amount of the initial bank.
• Places the remaining cash , checks and other
negotiable items/e.g. paid out vouchers in a f/o cash
envelop.
Settlement of account
• It is a collection of payment for outstanding account
balance.
• Involves bringing an account balance to zero.
• It is done by cash payment in full or transfer to an
approved credit billing /credit card account/ city
ledger.
Methods of handling guest accounts
• To ensure that guest accounts are accurate and current,
all guest’s credit or charge information must be
promptly communicated to the front office cashier for
posting.
1. Manually /preparing bill by hand/
2. Mechanically
3. By computer
• In large modern hotels, computers are widely used
because they are accurate and fast in the transfer of
credit or charge information.
• In addition, computers can be programmed to analyze
a hotel’s revenue in great detail and produce reports
for management in a very short period of time.
Handling of guest accounts by computer
• If a hotel is using a computer system, a guest account
will be created when the guest details are entered in to
the computer at check-in.
• The information will be stored in the memory of the
computer.
• Once a guest account is created, any subsequent debits
or credits may be posted directly to that account. This
can be done in a number of ways.
• Processor: some charges are posted by the computer
automatically: for example, the room charge /the
room rate which is recorded in the computer at check-
in/ can be automatically added to a guest’s account
each night by the computer.
• Charges can also be transferred directly from
computer terminals in other departments.
• For example, a waiter can enter a guest’s
breakfast charges by means of a small
computer terminal in the coffee shop.
• The charge will be then transferred to the main
processor at the front office and posted
directly on the guest’s account.
• E.g. Computer based front office accounting
system
Verifying posting
• To reduce errors in guest accounts and
prevent fraudulent staff practices, posting of
guest transactions are usually verified or
checked each day.
• This process is called auditing, and refers to
the process of checking the accuracy of the
guest accounts by balancing all departmental
accounts.
• During the auditing process the following are
usually carried out:
1. Posted entries are verified.
• Posted entries to each guest account are
checked to ensure that they have been charged
correctly.
• For example, if a guest has a telephone
charge on their account, a corresponding
amount should be listed for the room number
in the telephone revenue analysis.
• Any errors in posting should be corrected
immediately.
2. Accounts are balanced.
• All charges from different departments have to
be checked to ensure that they have been
correctly posted to guest’s accounts.
• E.g. the total charges stated by the coffee shop
cashier must equal the total coffee shop
charges on all of the guest’s accounts, as
recorded by front office.
3. Cash flow is checked
• This involves checking the cash and charges to
a guest’s account earned by each department,
as recorded on the department’s till/cash box,
against the amount of cash received by the
front office.
• The main purpose of this is to prevent any
fraudulent practices among staff.
• For example, the bar till may show sales of
drinks to be $ 150 in cash and $220 in signed
bills.
• The front desk must therefore, have issued a
cash receipt for the $ 150 and have $220
posted on guest counts against bar drinks.

4. Room status discrepancies are resolved.

• The auditor will check whether there are
rooms which are listed as ‘vacant’ but still
have bills outstanding, or rooms being
‘occupied’ for which there is no bill.
• Any discrepancies that exist present possible
errors and must be dealt with quickly.
5. No-show reservations are verified
• The auditor will clear the reservation file daily.
• Any guaranteed reservations which did not
arrive i.e. no-show will have their accounts
printed and an account settlement will be
requested.
• Before the introduction of computers, auditing
used to be done by a large team of night audit
staff.
• Nowadays, most of the audit work is
automatically performed by computers, and so
fewer night audit staff are needed.