Accounting For Hospitality Industry

Regardless of their size or ownership structure, all hotels need to have solid financial data to make strategic decisions and run efficiently. To meet these demands, hotel accounting integrates fundamental accounting concepts with rules particular to the hospitality sector, offering a framework for financial management that takes into account the particularities of the sector.

What Is Accounting For Hospitality Industry? 

Hotel accounting is a structured process of registering, analyzing, and summarizing all the financial transactions to present a hotel’s financial position. This information is useful to internal stakeholders like a manager who is operating a business or making operational decisions and it is also useful to the external stakeholder such as investors or creditors. Hospitality accounting uses basic accounting rules such as GAAP or IFRS in the international platform as well as the Uniform System of Accounts for the Lodging Industry (USALI), which provides simplified language and classifications for accounting within the lodging industry for comparison.

Importance of Hospitality Accounting

Accounting in hospitality is important to have an insight into the financial situation and future prospects of your hotel business. You can get a clear picture of your revenue, your profitability, and every financial aspect that runs your hotel. With proper hotel accounting, you will have little idea about your income and expenditures, spending, and missed opportunities.

What Makes Accounting For Hospitality Industry Different?

Although accounting in other sectors is similar to hospitality accounting in many ways, there are four major industry elements influencing hotel accounting.

1. Ownership Structures: Many hotels are owned in various organizational structures ranging from partnerships, franchises, and Corporate structures which make the accounting more complex.
2. Third-Party Management: External property managers are frequently employed by hotels, which impacts accounting and often requires professional expertise.
3. Operational Management Systems: The flow of information between booking systems and accounting systems directly impacts revenue recognition and overall financial control.
4. Multiple Revenue Streams: Hotels frequently provide extra services like dining options, events, and excursions, all of which have their own financial reporting and tracking requirements.

Financial Statements in Hospitality Accounting 

Hotels prepare all basic company financial statements, although they adjust these statements according to USALI standards for presentation. These statements include:

Balance Sheet: Provides the overall picture of the total assets of the business that can be verified at a given point in time of the financial year and the amount of liabilities and equity.

Income Statement (P&L): Shows the total revenues, expenditures, and profits accrued over a specified period or in connection with a particular department.

Cash Flow Statement: Presents the income and expenditure via a cash flow statement, in operating, investing, and financing activities sections. 

Statement of Changes in Equity: Summarizes changes in equity accounts over a period as well as information about retained earnings and other parts of the equity. 

Notes to Financial Statements: Present further information that relates to the accounting policies adopted, balances, and other material facts not reflected in the financial statements. 

Key Metrics In Hospitality Accounting

There are several important metrics that will help executives control various aspects of the hotel’s operations and evaluate its financial performance: 

• Average Daily Rate (ADR): Used to calculate the number of revenue generated per occupied room.
• Rooms Available: Stands for the total of the available rooms for rent. 
• Occupancy Rate: Refers to the percentage of available rooms that are booked/occupied. 
• Revenue per Available Room (RevPAR): This involves the use of both occupancy rate and ADR to determine overall revenue effectiveness.
• Total Revenue per Available Room (TRevPAR): Responsible for recording all sources of revenue. 
• Gross Operating Profit per Available Room (GOPPAR): Consider gross operating profit per available room. 
• Cost of Goods Sold (COGS): Applicable to the direct costs of the services and products that generate non-room revenues. 
• Food Cost Percentage: Measures the cost of ingredients relative to food and beverage revenue. 
• Labor Cost Percentage: Keeps track of the cost of labor measured as a proportion of gross revenue.
• EBITDA: These are earnings before interest, taxes, depreciation and amortization.
• Debt Service Coverage Ratio (DSCR): This one compares net operating income with debt service.

Key Roles In Hospitality Accounting 

Key roles in hospitality accounting ensure accurate financial management and reporting:

• Hotel Accountant: Runs most of the financial transactions and keeps records of them as well. 
• Accounts Payable/Receivable Clerk: Deals with payment of vendors and customer billing.
• Night Auditor: Responsible for closing shifts and customer service during the night shifts.
• Financial Controller: Oversees the activities involved in accounting and is responsible for the implementation of all the accounting standards. 
• Payroll Manager: Responsible for handling payroll and other taxes and benefits of the employees. 
• Inventory Accountant: Ensures proper documentation of the inventory assets.
• Chief Financial Officer (CFO): Responsible for the financial health of the company and supervises the financial planning.
• Revenue Manager: Optimize the room rate and its pricing to achieve maximum business from it. 

Common Challenges In Hospitality Accounting 

There are several operational challenges that come with hospitality accounting: 

• Continuous Operations: Hotels engage in business 24/7 all through day and night, so they have to process transactions constantly. 
• Multiple Revenue Streams: Handling multiple income streams and the cost of managing them entails proper tracking and recording of each stream. 
• Integration of Systems: There must always be a synchronization in the system between the booking and the accounting activities. 

The Essential Role of Hospitality Accounting Software in Business Success

Leveraging hospitality accounting software is crucial for streamlining operations, optimizing cost efficiency, and enhancing customer satisfaction in your hospitality business. Xeo cloud accounting automates key processes, including bookings, staff scheduling, supplier orders, and stock management, leading to smoother and more efficient operations. 

It provides real-time insights into your Cost of Goods Sold (COGS) and customer spending, helping you identify cost-saving opportunities and make informed decisions. Additionally, it supports seamless online booking and payment processes, which boost customer satisfaction and loyalty. 

With automated staff management, precise payroll synchronization with Xero, detailed reporting and analytics, and simplified tax compliance, this software ensures operational excellence. Integrating with Xero offers a comprehensive view of your business, facilitating accurate financial management and driving profitability and success.

Read Why Choose Fastlane Group for Your Xero Implementation

Types of Accounts In Hospitality Accounting 

Generally, there are three types of accounts known as ledgers that are maintained by a hotel. 

1. Guest Accounts: A list of transactions that take place between a guest and the hotel. For instance, when the guest wants a meal to be brought to the room through the room service.

2. Non-Guest Accounts: The business transactions that are conducted between your hotel and other third parties like suppliers, etc.

3. Management Accounts: Documents that can present to managers, owners, and sometimes other stakeholders an overall picture of the status of a hotel, generally provided on a quarterly or bi-monthly basis.

These categories can further contain different ledgers or metrics that can be maintained. For instance, there might be a bar sales ledger, restaurant sales ledger, room service ledger, room rental ledger, and amenities hire ledger to provide better tracking and a much clearer picture while evaluating the performance.

What is the Hotel Accounting Chart of Accounts (COA)?

The chart of accounts shows the ledger accounts created for the hotel’s financial reporting. It provides the written evidence that you maintain for the health of your business. It commonly includes: 

• Revenue/Income: Revenue inflows from the services that you provide (for example, from rental of rooms).
• Expenses: Expenses which you spend to maintain and repair properties and services such as rents of business and salary of employees.
• Assets: Assets you possess or control that guarantee future revenue, for example, amenities.
• Liabilities: Obligations that require payment (eg. suppliers). 
• Equity: The value of the business that you are operating.

Your chart of accounts will vary based on the details of your business and your goals, but these metrics are a place to begin. 

How To Maintain Accounting In Hospitality Industry 

 To keep your accounts neat and orderly, you need to: 

• Keeping an Up-to-date Balance Sheet: Displays the current equity, liabilities, and assets of your brand.
• Using Profit/Loss Statements: Recognize when you’re either winning or losing and by how much so you can adjust your strategies.
• Using Cash Flow Reports: Make sure that your revenues and expenditures are balanced to prevent negatively affecting some aspects of your operation.
• Providing Staff with Advanced Training:  Make sure that the staff in your in-house accounting is well-qualified and they are using the best software. In case the resources are limited, one can opt for outsourcing to a professional team.
• Implementing an Effective Revenue Management Strategy:  Use the results to monitor the key performance indicators and metrics to enhance efficiency. 
• Utilizing Software to Manage Accounting: Accounting software reduces time spent on data preparation significantly and delivers more precise numbers that are simpler to analyze.

Why Your Hotel Needs an Accounting Protocol

It becomes very important therefore to have a standard procedure on how accounting is done in your hotel. A process of constant analysis and reporting is very useful for a regular check on the state of your hotel’s finances.

Key Hotel Accounting Procedures

Establish objectives when collaborating with an accountant or your internal accounting team. 

• How many accounts and ledgers are required to be handled
• What data to track
• How to record data
• What reports to use
• How often to report
• Objectives to monitor

Recording these steps will also lay a good foundation because they improve your business and make you more successful.With the skilled hospitality accounting services provided by FastLane Group, you can maximize your hotel’s financial success. Our all-inclusive solutions are designed to satisfy the particular requirements of the hospitality sector, ensuring precise financial management, increased profitability, and efficient operations. Take the first step toward realizing the full potential of your hotel by partnering with FastLane Group today. Contact us right now to find out how we can support the success of your company!