Hotel Accounting Procedures

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Hotel accounting procedures helps firms report accurate financial statements.
Hotel accounting procedures helps firms report accurate financial statements. (Image: hotel image by muro from Fotolia.com)

Hotel accounting procedures help a firm in the hospitality industry prepare accurate financial statements that conform to regulations and accounting principles. These regulations include international financial reporting standards (IFRS) and U.S. generally accepted accounting principles ( GAAP). They also relate to the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) rules.

Revenue and Expense Recognition

SEC and PCAOB regulations require a hospitality company to establish adequate and functional controls in revenue and expense recognition (recording) systems. Revenue is income that a hotel generates by providing services or renting rooms. Example of revenue items include guest reservation fees and room charges. A hotel accountant credits a revenue account to increase its amount and she debits it to reduce the account balance. An expense is a cost or loss that a hotel incurs in providing services or renting rooms. Expenses may relate to salaries, cost of food and beverage and utilities. A hotel bookkeeper debits an expense account to increase its amount and he credits it to reduce the account balance. A hospitality firm reports revenues and expenses in its statement of profit and loss.

Asset and Liability Recording

A hotel manager must implement adequate guidelines in asset and liability recording systems because asset and liability items indicate the company's financial solidness. These items reflect a firm's working capital or short-term cash availability (working capital equals current assets minus current liabilities). An asset is a resource that a hotel owns, such as cash and inventories (short-term assets) or real-estate and machines (long-term assets). A liability is a debt the hotel must repay when it is due or a financial promise it must honor on time. A short-term liability is a debt that a hospitality firm must repay in a year or less, whereas a long-term debt is due after a year. A hotel bookkeeper debits an asset account to increase its amount and she credits it to reduce the account balance. The opposite is true for a liability account. A hotel reports assets and liabilities in its balance sheet.

Financial Reporting

Accounting regulations and procedures, such as U.S. GAAP and IFRS as well as SEC and PCAOB rules, require a hospitality company to report "fair" and complete financial statements at the end of each quarter or year. In hotel accounting terminology, "fair" means accurate or objective. A complete set of financial reports includes a balance sheet (otherwise known as statement of financial position), statement of profit and loss (P&L or statement of income), statement of cash flows and statement of equity (also referred to as statement of retained earnings).

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