Front office Accounting System
Accounting is an art as well as science of recording, classifying and summarizing of business transactions which are of a financial character.
From the above definition, it can be summarized that it is having mainly four elements:
1. Recording of transactions and events in terms of money.
2. Classification, which means preparation of accounts.
3. To make summary, which means to the preparation of profit and loss account and balance sheet.
4. To make interpretation of accounts means driving conclusions from accountancy records.
Front office accounting system Creates and maintains an accurate accounting record for each guest or non guest account. Front office accounting system tracks financial transactions through the guest cycle.
Front office accounting system ensures internal control over cash and non cash transactions. Front office accounting system records settlement for all goods and services provided.
Types of accounts in front office department
A guest account in front office accounting system is to record of financial transaction between a resident guest and the hotel. It is created when the guests guarantee their reservations or during registration. The front office usually seeks payment for charges during the departure and settlement stage of the guest cycle.
A non-guest account in front office accounting system is to record of financial transaction between a non-resident guest and the hotel. This is also known as a city account. The front desk cashier maintains the records of financial transactions between the hotel and a local resident to whom the hotel has extended the credit facility for the use of hotel facilities and services. The front office creates non-guest accounts to track these transactions which may also be called house accounts or city accounts. Besides local guests, the front desk cashier also maintains other types of non-guest accounts, which include the following:
a) Skipper guest- Guest who leave the hotel without the settlement of their accounts.
b) Bill to company guest, where the payment is collected by the accounts department after the guets check-outs form the hotel.
c) Advance payment received for a guaranteed reservation, but it becomes a no-show.
Distinguish between Guest Account & Non guest Account Guest Account Non Guest Account
· Record of all financial transactions that occur between the guest and the hotel when they guarantee a reservation or they are registered at the Front Office.
· Refers to all in-house charge privileges extended to local businesses or agencies eg. Banquets & conferencing facilities. These are also created when a former guest fails to settle his bill at the time of departure & the responsibility of recovering the balance amount shifts from Front Office to Accounts Dept. Or back office accounting.
· These are compiled on a daily basis.
· Billed on a monthly basis.
· Front Office is responsible for its maintenance.
· Back office or Accounts Dept takes the responsibility of account settlement.
A folio is a statement of all transactions affecting the balance of a single account. A folio is a statement of all transactions (debits and credits) affecting the balance of a single account. Front office transactions are typically recorded on folios. When an account is created, it is assigned a folio with a balance of zero. The front office records on the folio all transactions which increase or decrease the balance of the account.
There are basically 5 types of folios used in front office accounting and maintained with front office accounting system:
a) Guest Folios – Accounts assigned to individual guests or guestrooms.
b) Master Folios – Accounts assigned to more than one guest or guestroom, usually applicable for group accounts.
c) Non-Guest or Semi-Permanent Folios – Accounts assigned to non-guest business or agencies with hotel charge purchase privileges.
d) Employee Folios – Accounts assigned to employees with charge purchase privileges.
e) Split Folios – Accounts assigned to a guest on his/her request to split his/her charges and payments between two personal folios – one to record expenses to be paid by the sponsoring business company and the other to record personal expenses to be paid by the guest. In this case two folios are created for the same guest.
A voucher details a transaction to be posted to a front office account. It is a supporting document maintained for all financial transactions recorded in the guest folio. It is a written statement or a documentary evidence of a financial transaction.
There are several types of vouchers used in front office accounting system:
a) Cash Voucher – A voucher used to support a cash payment transaction at the front desk.
b) Charge Voucher – A voucher used to support a charge purchase transaction that takes place somewhere other than the front office.
c) Allowance Voucher – A voucher used to support an account allowance.
d) Cash Advance Voucher – A voucher used to support cash flow out of the hotel, either directly to or on behalf of the guest.
e) Correction Voucher – A voucher used to support the correction of a posting error which is rectified before the close of business on the day the error was made.
f) Paid-Out Voucher – A voucher used to support the cash paid by the hotel on behalf of a guest. Example are
· Postage and courier charges.
g) Transfer Voucher – A voucher used to support a reduction in balance on one folio and an equal increase in balance on another. Transfer vouchers are used for transfers between guest accounts and for transfers from guest accounts to non-guest accounts when they are settled by credit cards.
h) Travel Agency Voucher – In travel agent guaranteed reservation, the travel agent forwards a voucher to the hotel as proof of payment and guarantees that the prepaid amount will be sent to the hotel when the voucher is returned to the travel agency for payment.
Distinguish between Voucher & Folio
· It gives details of a single transaction to be posted at the Front Office.
For E.g. A florist or a gift shop might not have provision of posting a particular transaction into a registered guest account. They can send the voucher to notify the FO of guest charge privileges that need posting.
· Refers to the statement of all transactions (debits & credits) affecting the balance of a single account.
This may include all non guest or guest accounts.
· It gives all the information about one transaction documented at the source of transaction (POS).
· This gives details of all the transactions under a particular account; contains all transactions that increase or decrease the balance.
· The voucher accounts for a single posting.
· Whereas a folio lists out all the postings in an account.
· Created and maintained at front office cashier/accounting.
· Types of Vouchers are cash vouchers, charge vouchers, transfer vouchers, allowance vouchers & paid-out vouchers.
· Some of the types of Folios are Guest folios, Master folios & Incidental folios, Non-guest or Semi Permanent Folios, Employee Folios.
The term ‘point of sale’ denotes the location at which goods or services are purchased. Any hotel department that collects revenue for its goods and services is considered a point of sale. The front office accounting system must ensure that all charge purchases at these points of sale are posted to the proper guest or non-guest account. A computerized POS system allows terminals at the points of sale to communicate directly with a front office computer system, and helps front office staff to create a well documented folio statement with a minimum number of errors. Some basic information to be provided by the POS includes the amount of the charge, name of the POS outlet, room number, name of the guest and a brief description of the charge.
A ledger is a summary grouping of same types of accounts. A front office ledger is a collection of front office account folios.
There are two types of ledgers in front office accounting system:
a) Guest Ledger – It refers to the set of accounts related to the resident hotel guests. It is also known as Front office ledger or Rooms ledger.
b) City Ledger – Also called the non-guest ledger, it is the collection of non-guest accounts. These are the accounts of non-resident guests.
Distinguish between Guest Ledger & City Ledger
· Is the set of guest accounts for registered guests or guests who have sent advance deposits.
· Refers to the set of non guest accounts. For e.g., if a guest account is not settled in full on check out, the balance is transferred to the back office accounting division for collection.
· Corresponds to registered guests or guests reserved for future dates.
· May or may not account to registered guests alone
· Records all financial transactions of an in-house guest.
· Contains Credit Card payment accounts, Company accounts, direct billing accounts, outstanding accounts of guests stayed earlier and are due for collection.
· Also referred to as transient ledger, front office ledger or room’s ledger.
· It is also called Non-guest ledger.
· Maintained at front office
· Maintained by accounting division (back office accounts)
Accounting defined as the process of collecting, recording, summarizing, and analyzing financial transactions of a business. According to the American Institute of Certified Public Accountants (AICPA), ‘Accounting is an art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions, and events which are, in part at least, of a financial character, and interpreting the results thereof.’
The major functions of front office accounting system are as under:
Creation and maintenance of guest and non-guest accounts accurately
Tracking financial transactions of guests throughout the guest cycle
Monitoring the credit limit of guests, and asking for a deposit from guests in case of high outstanding balance
Preparing a high balance report for collection and informing the management about the same
Providing an efficient management information system (MIS) to the management for departmental revenue generation
Maintaining effective control over cash and credit transactions
Front office accounting system records settlement for all goods and services provided.
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. The front desk maintains two types of accounts:
A guest account is the record of financial transactions between and a resident guest and the hotel. This account is created either during the registration of the guest (at the time of check-in) or during reservation, if the guest makes an advance payment.
A non-guest account is the record of the financial transactions that take place between a non-resident guest and the hotel. This is also known as a city account.
The front desk cashier also maintains other types of non-guest accounts, which include:
Guests who leave the hotel without the settlement of their accounts are known as skippers; their accounts are also treated as non-resident guest accounts. The account is transferred to the city ledger awaiting eventual payment, and after a stipulated wait time, the same is written off as a bad debt.
The status of guests, whose accounts are not settled by them (in case of bills to company), changes from resident to non-resident guests when they leave the hotel. The front desk cashier transfers the balance to the city ledger and the payment is collected by the accounts department.
When advance payment has been received for a guaranteed reservation and it is subsequently a no-show, the account is normally recorded in the city sales ledger
A folio is a statement of all the transactions that take place between a hotel and a guest. A folios is a statement of all transactions (debit & credit) affecting the balance of a single account. When an account created, a folio is assigned with a starting balance zero. All transactions, which increase (debits) or decrease (credits) the balance of the account is recorded on the folio. At settlement a guest folio should be returned to a zero balance by cash payment or by transfer to an approved credit card or direct billing account. The process of recording transactions on to a folio is called posting.
There are basically four types of folios used in front office accounting:
a) Guest folios: To record transactions made by an individual or independent guest with the hotel.
b) Master folios: Accounts assigned to more than one person or guestroom: usually reserved for group accounts.
c) Non-guest folios: Also known as semi-permanent folio. Accounts assigned to non-guest business or agencies with hotel charge purchase privileges.
d) Employee folios: Accounts assigned to employees with charge purchase privileges.
Split Folios – Accounts assigned to a guest on his/her request to split his/her charges and payments between two personal folios – one to record expenses to be paid by the sponsoring business company and the other to record personal expenses to be paid by the guest. In this case two folios are created for the same guest.
Every folio should have a unique serial number. Folio serial numbers are needed for many reasons. First, they serve as identification numbers that help ensure that all folios are accounted for during an audit of front office transactions. Second folio numbers may used to index information in automated systems. Automated systems frequently create folio numbers when reservations are made. Finally folio numbers can provide a chain of documentation.
A voucher details a single transaction to be posted to a front office account. This document lists detailed transaction information gathered at the source of the transaction. The voucher is then sent to the front office for posting onto the guest folio. Voucher is a supporting documents used only for internal control purposes. Usually any service or goods brought on credit by the guest has to be supported by a voucher. Most automated front office systems require few paper vouchers.
Visitors Paid-out Voucher: The money paid by the hotel on behalf of guests is known as visitors paid-out (VPO). A VPO is generally made for the following charges:
· Payment for taxi, travel agency services
· Postage and courier charges
· Emergency medical expenses
Travel Agent Voucher: In travel agent guaranteed reservation, the travel agent forwards a voucher to the hotel as proof of payment and guarantees that the prepaid amount will be sent to the hotel when the voucher is returned to the travel agency for payment.
Most tour operators and travel agencies receive advance payment from their clients for making travel arrangements like accommodation, food and beverage, and other services. The travel agency then makes the reservation in a hotel on behalf of the guest. It sends a voucher, known as a travel agent voucher, containing the details of the billing procedure and services to be provided to the guest. Airlines that have contracts with hotels also send meals and accommodation order (MAO) or passenger service order (PSO) for layover passengers due to delay or cancellation of flights. In these cases, the hotel obtains payments from the travel agency or airline.
Telephone Call Voucher : In small hotels, where outgoing calls are routed through the operator, the responsibility of billing the call charges lies with the telephone operator, who puts down the call details on a telephone charge voucher and sends it to the front desk cashier for posting into the guest account. Nowadays a lot of hotels use computerized systems, where, whenever a guest makes a call, the call accounting module automatically transfers the call charges to the guest folio.
Miscellaneous Charge Voucher: A miscellaneous charge voucher is prepared for the payment of miscellaneous services and facilities, like laundry, health club, fitness centre, beauty salon, etc. The guest verifies and signs the miscellaneous charge voucher, which is sent to the front desk cashier for posting the charges into the guest folio.
Cash Receipt Voucher: A receipt is an acknowledgment that a payment has been made. A cash receipt voucher is prepared and issued to the person depositing cash as a proof of remittance of the deposited cash.
Commission Voucher: Hotels offer commission to persons who provide regular business to them. Whenever a commission is paid by the cashier, a commission voucher is made. The commission voucher should be authorized by a competent authority of the hotel. Generally, it is authorized by the lobby manager. More commonly, commission vouchers are made for the following:
· A taxi driver who brings a walk-in guest to the hotel. In case the guest stays at the hotel, the hotel pays a commission to the taxi driver. A travel agent/tour operator working on commission basis
· Any agency working on a commission basis.
Guest Allowances : An allowance is an amount deducted from an invoice to compensate the buyer for an expense or mistake. The guest allowance is the cash paid to the guest by the hotel, especially in the following circumstances:
· If there is a wrong posting of a charge in the guest folio, an allowance is given and the voucher is made to nullify the guest folio balance due to the wrong posting.
· If a guest has deposited a large sum as advance and that amount exceeds the hotel bill.
· If an airline or a tour operator sends a crew or a group and guarantees the reimbursement of their bills.
Restaurant/Bar Check: Resident guests may enjoy their meals in any of the food and beverage outlets in a hotel. Whenever a guest consumes food or beverage in a restaurant, a bill is raised; in case a resident guest wishes to utilize the credit facility offered by the hotel, he should sign the bill. The signed bills serve as the proof of financial transactions at the food and beverage outlets and are treated as vouchers for posting the charges to the guest folio.
The front ledger is a collection of front office account folios. The folios represented in the front office are a part of the front office accounts receivable ledger. An account receivable represents money owed to the hotel. Front office accounting commonly separates accounts receivable into two subsidiary groups- the guest ledger (for guest receivables) and the city ledger (for non-guest receivables).
Guest Ledger: A guest ledger contains the details of all the financial transactions between a resident guest and the hotel, including charge purchases and the payments received from the guest. It has two parts—debit and credit. In a manual system, the financial transactions are recorded in a tabular ledger, or tab ledger, which is of two types:
· Horizontal tabular ledger
· Vertical tabular ledger
In a horizontal tabular ledger, all the credit expenses of the guest are recorded in one horizontal row, and at the end of the row, the guests’ credit or debit balance is shown.
The vertical row of the table contains the room numbers. At the end of vertical column, the daily sales balance can be seen. A vertical tabular ledger is a variation of the horizontal tabular ledger. It is also called visitors tabular ledger. The rows depict the room numbers, and in the columns, the details of the guests and their credit expenses as well as payments are recorded. At the end of every column, one can find the account balance of individual guests staying in a particular room. It is a loose sheet and is prepared on a daily basis by the front desk cashier.
City ledger: The city ledger also called the non-guest ledger is the collection of non-guest accounts. A city ledger contains the collective accounts of all the non-resident individuals/agencies to whom the hotel extends credit facility. It is also called non-guest account.
· City ledgers also contain the accounts of resident guests who have left the hotel without settling their accounts, which would be settled at a later date by a third party (may be a credit card company, an airline, a travel agency, or a corporate house).
· This account would be closed at the time of receiving the complete payment.
· The account of skippers is also maintained in the city ledger for a specific period (as per the hotel policy); at the expiry of this period the same is written off as bad debt and the account is closed.
· This ledger also includes bad cheque accounts (cheques that have bounced), disputed bills account (bills that are in dispute), late charges accounts (bills that could not be posted in the guest bill at the time of check-out), and retention charges accounts (reservation was guaranteed but the same was cancelled or guest did not show up).
Front Office Accounting Cycle
An important function of the front office accounting system is to maintain an accurate and up-to-date record of all the financial transactions (credit and debit) between the hotel and each guest, so that all the outstanding accounts are settled and the hotel does not lose any revenue. The front office accounting cycle has three distinct phases:
Creation of Accounts : A guest account is created when the first financial transaction between the hotel and a guest takes place. It may happen at one of the following stages:
· At the time of reservation, if the guest pays an advance amount
· At the time the hotel receives the advance payment for a booking after the reservation has been made and before the arrival of the guest.
· At the time of guest registration, when a room is allotted to the guest.
· A guest folio is created on the day the hotel receives a payment from the guest and the transactions are recorded in the order of their occurrence.
· The hotel sets a credit limit, known as floor limit, for each guest, which is the maximum amount of credit that the hotel will extend to the guest.
Maintenance of Accounts: All the monetary transactions that take place between the hotel and a guest are recorded in the guest folio in the order of their occurrence. An entry in the guest folio may be either debit or credit.
The most common debit entries in a guest account include the following:
· Food and beverage charges (restaurant, bar, coffee shop, room service, etc.)
· Telephone and fax charges
· Health centre, business centre, fitness centre charges
Credit entries in a guest account may include the following:
· Pre-payment, in part or in full (at the time of reservation or between reservation and arrival).
· Part payment during the stay.
· Allowances given to the guest.
· Adjustments made in case of any error in posting in the guest folio.
· Final payment for the settlement of accounts at the time of check-out.
Settlement of Accounts: This is the final and concluding phase of the front office accounting cycle. The settlement of account means zeroing the balance in a guest folio. The formula for calculating the outstanding balance is:
Opening balance + Debit entries – Credit entries = Outstanding amount
At the time of departure, the final bill of the guest is prepared and settled in such a way that the outstanding balance is brought to zero. The settlement of the guest account may be by cash or credit. In case of credit settlement, the account balance is transferred to the city ledger and the responsibility of collecting the balance is transferred to the accounts department.
Charge purchase transactions must be correctly documented in order for the front office to properly maintain accounts. A major concern of the front office accounting process involves the communication of transactional information from remote point-of-sale to the front office.
A transaction initiates activity within the front office accounting system. The front office accounting system can be described as a transactional accounting system. Proper posting procedures depend on the nature of the transaction and its monetary value. A transaction can be classified as:
Each type of transactions will have a different effect on the front office accounting system. Each may be communicated to the front office through the use of a different type of voucher, which will help simplify eventual auditing procedures.
Cash Payments: Cash payments made at the front desk to reduce a guest’s net outstanding balance are posted as credits to the guest or non-guest account, thereby decreasing the balance of the account. The front office may use a cash voucher to support such transactions. When cash is paid for goods or services at a location other than the front desk, no entry will appear on the account folio. The account for this transaction is created, increased, settled and closed at the point-of-sale, thereby eliminating the need for front office documentation or posting.
Charge Purchase: Charge purchase represent deferred payment transactions. In a deferred payment transaction the guest receives goods and services from the hotel, but does not pay for them at the time they are provided. A charge purchase transaction (Debit) increases the outstanding balance of a folio. In non-automated and semi-automated properties the transactions in revenue centers are communicated to the front office for posting by means of account receivable vouchers.
Account Correction: An account correction transaction resolves a posting error on a folio. By definition an account 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: Account allowance involves two types of transactions. One type of account allowance is as decrease in folio balance for such purpose as compensation for poor service or rebates for coupon discounts. Another type of account allowance corrects a posting error detected after the close of business. Such an error will be separately entered into 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 which normally requires management approval.
Account Transfer: Account transfer involves two different accounts and then to have offsetting impacts on subsequent account balance. For example when one guest offers to pay a charge posted to another guest folio the charge will need to be transferred from the first account to the second account. A transfer voucher supports an account transfer. Am account transfer may also occur when a departing guest uses a credit card to settle his/her account. The guest outstanding balance is transferred from guest account to a non-guest account through the use of transfer voucher.
Cash advance/ Visitors Paid Out (VPO): Cash advances differ from other transactions in that they reflect cash flow out of the hotel, either directly to or on behalf of a guest. Cash advance transactions are similar to debit transactions and increase a folio balance. Cash advances are supported by cash advance vouchers (format). Cash disbursed by the hotel on behalf of the guest and charged to the guest’s account as a cash advance is typically called a paid-out. Such expenses are usually taxi charges, porter charges, emergency medical expenses, ticket confirmation charges, floral delivery etc. For example, a guest who orders a floral delivery, may request that the front desk agent accept the order and pay for the flowers. This payment for flowers is a cash advance on the guest’s behalf. The front office pays for the delivery on the assumption that the guest will reimburse the hotel. Hotel policy will dictate how cash advances are to be handled. Usually, prior confirmation needs to be taken from the guest before any payment is made on his behalf. These payments are made from the cash bank received at the beginning of the shift by the cashier. Paid outs are only made in local currency.
Procedure for handling paid-outs:
· Confirm the name, room no. and identity of the guest
· Find out details for which the paid-out is being made
· Fill in details into the paid-out voucher. Every voucher is numbered to maintain control.
· Get voucher authorized by the lobby manager.
· The guest signs in acknowledgement.
· Make the payment in cash to the guest or service provider- taxi or florist, etc.
· Fill in the details in the paid-out column of the front office cashier’s report.
· Points of sale are the physical locations at which goods or services are purchased.
· Any hotel department or area that collects revenues is a point of sale.
· Large hotels typically support many points of sale: restaurants, lounges, room service, dry cleaning, valet service, parking garage, telephone service, fitness centers, athletic facilities, spas, and retail shops.
· Some hotels offer guest-operated devices that function as self-service points of sale (in-room movie systems, Internet-access devices, in-room vending systems
· The volume of goods and services purchased at scattered points of sale within the hotel requires a complex internal accounting system.
· An automated point-of-sale (POS) system enables remote terminals at the point of purchase to communicate directly with the front office system.
· Automated POS systems significantly reduce the amount of time needed to post charges to guest folios, minimize the number of times transactional data must be handled, and virtually eliminate after-departure (late) charges.
· POS information includes transaction number, charge amount, name of POS outlet, guestroom number, name of the guest, and a brief description of the charge.
· To establish charge privileges, a guest may be required to present a valid payment card or a direct billing authorization at the time of registration; an automated system will allow credit to be established at the time a reservation record is created.
· Typically, the hotel obtains the number and expiration date of the guest’s payment card and electronically requests an amount guarantee from the card company.
· Once a line of credit has been approved, guests can make charge purchases at hotel points of sale.
· Guests who use cash to pay for accommodations are typically not extended charge privileges; these guests are called paid-in- advance or PIA guests.
· In an automated front office system, PIA accounts are usually set to a “no-post” status.
· In addition to guests, local businesses or residents may apply to the hotel for charge privileges.
· Front office staff must monitor guest and non-guest accounts to ensure they remain within acceptable credit limits.
· Guests using a payment card may be extended a line of credit equal to the floor limit authorized by the card company; guests and non-guests with other credit arrangements are subject to credit limitations (house limits) set by the front office.
· Accounts approaching their floor or house limit are called high-risk or high-balance accounts and must be carefully monitored by management.
· For high-risk accounts, front office managers may ask the payment card company to authorize additional credit, or request that guests make a partial payment.
· A cash bank is the amount of cash assigned to a cashier to handle the various transactions that occur during a work shift.
· The hotel may issue cash banks with a specific amount of money to each cashier.
· The bank limit is the starting amount the bank should have when it is issued at the start of the shift.
· Cashiers typically sign for their banks at the beginning of their shifts and are the only people with access to their particular bank. At the end of the shift, the cashier deposits all cash, checks, and other negotiable instruments into the hotel safe (or other designated location).
· After the deposit is made, the bank should be back to its original bank limit. In hotels that do not assign individual banks, cashiers usually pass the banks to the next shift after making their deposits and verifying the balance of the banks at the end of their shifts; the cashiers receiving the banks should also verify that the banks have the proper amount of cash in them.
· When a cashier makes a deposit, another employee should witness the deposit and both employees should sign a log.
Net cash receipts: Net cash receipts are the amount of cash, checks, and other negotiable items in the cashier’s drawer, minus the amount of the initial cash bank, plus any paid-outs.
Overages: An overage occurs when, after the initial bank is removed, the total of the cash, checks, gift certificates, and paid-outs is greater than the net cash receipts.
Shortages: A shortage occurs when the total of the contents of the cash drawer is less than the net cash receipts.
Due backs: A due back occurs when a cashier pays out more than he or she receives; in other words, there is not enough cash in the drawer to restore the initial bank.
FRONT OFFICE ACCOUNTING FUNDAMENTALS
An effective guest accounting system consists of task performed during each stage of guest cycle. During the pre-arrival stage, a guest accounting system captures data related to the type of reservation guarantee and tracks prepayments and advance deposits. When a guest arrives at the front desk the guest accounting system documents the application of room rate and tax at the registration. During stay a guest accounting system tracks authorized guest purchases. Finally, a guest accounting system ensures payment for outstanding goods and services at the time of check-out.
In brief, a front office accounting system:
· Creates and maintains an accurate accounting record for each guest or non-guest account
· Tracks financial transaction throughout the guest cycle
· Ensures internal control over cash and non-cash transactions
· Records settlement for all goods and services provided
Given below is a brief review of some general concepts of front office accounting:
An account is a form on which financial data are accumulated and summarized. An account may be imagined as a bin or container that stores the results of various business transactions. The increases and decreases in an account are calculated and the resulting monetary amount is the account balance. Any financial transaction that occurs in a hotel may affect several accounts.
In its simplest form, an account resembles the letter T and therefore this system is known as T- form of accounting .Charges are increases in the account balance and are entered on the left side of the T which is known as the debit side. Payments are decreases in the account balance which is entered on the right side of the T and is known as the credit side.
Guest Accounts: A guest account is a record of financial transactions which occur between a guest and the hotel. Guest accounts are created when guests guarantee their reservations or when they register at the front desk. The front office usually seeks payment for any outstanding guest account balances during the settlement stage of the guest cycle.
Non-Guest Accounts: A hotel may extend charge privileges to local businesses or agencies as a means of promotion, or to groups conducting meetings, conferences at the hotel. The front office creates non-guest accounts to track these transactions. These accounts may also be called house accounts or city accounts.
Front office transactions are typically charted on account statements called folios. A folio is a statement of all transactions (debits and credits) affecting the balance of a single account. When an account is created, it is assigned a folio with a starting balance of Zero. All transactions which increase (debits) or decrease (credits) the balance of the account is recorded on the folio. At settlement, a guest folio should be returned to a zero balance by cash payment or by transfer to an approved credit card or bill to company account.
The process of recording transactions on a folio is called posting.
There are basically four types of folio:
1) Guest Folio: Accounts assigned to individual persons staying in the hotel.
2) Master Folio: Accounts assigned to more than one person or guest room, usually reserved for group accounts.
3) Non-guest Folio: Accounts assigned to non-guest businesses or agencies with charge purchase privileges.
4) Employee Folio: Accounts assigned to employees with charge purchase privileges.
Additional types of folios are frequently created by front office management to accommodate special circumstances or requests. For example, a business guest may request that his charges be split between two separate folios, one to record all Room charges, F & B charges and Laundry expenses and another one to record rest of the expenses. Main folio is usually called ‘A’ folio and the second one is called incidental folio.
Every folio should have a unique serial number. First, they serve as unique identification numbers for control purpose and they are also used for indexing purpose.
A voucher details a transaction to be posted to a front office account..This document lists detailed transaction information gathered at the source of transaction, such as the hotel coffee shop or Bar. The front desk cashier is required to present supporting documents of all the financial transactions recorded in the guest folio. A voucher-which entitles the bearer to certain goods, services, or discounts upon presentation- is a documentary evidence of a financial transaction. For every purchase, the point of sale presents the bill to the guest, receives cash from the guest, and gives a cash receipt to the guest. In case a charge purchase is made , the guest signs the bill and the same is sent to the front desk for posting it into the guest account; the same is given to the guest at the time of check-out.
The types of vouchers commonly used in hotels are as follows :
· Allowance/ Correction voucher
· Miscellaneous charge voucher
Creation and Maintenance of Accounts
The task of accurately and correctly recording all transactions that affect guest ledger accounts is the responsibility of the front office. Guest folios are created during the reservation process or at the time of registration. To prepare a folio for use, information from the guest’s reservation or registration record must be transferred to the folio. Non automated systems commonly used pre-numbered folios for internal control purposes. Manually posted guest folio cards are stored in a front desk folio tray which is also referred as a bucket.
In a fully automated system, guest information is automatically transferred from an electronic reservation record or captured at registration and entered into an electronic folio. One of the major advantages of electronic data processing is that captured data need only be handled once. By only having to handle data once, an automated system can significantly reduce errors caused by repetitive data handling.
To establish an in-house line of credit, a guest may be required to present an acceptable credit card or a direct billing authorization at the time of registration. Charge privilege implies that a guest is allowed credit facility in the hotel. This may also happen when guest is regular in the hotel or source of reservation is reliable. Guests with charge privilege are authorized to make charge purchases and these transactions are communicated manually by vouchers or electronically from remote POS locations to the front desk. Guest who are not extended charge privileges need to pay an advance deposit for accommodations and they are typically called paid-in-advance or PIA guests. In a fully automated front office accounting system, such accounts are set to a NO POST status. This means that revenue center cashiers will not be able to post charges to a guest whose account has a no post status. In a non automated system, a PIA list is manually distributed to all revenue centers.
The front office must monitor guest accounts to ensure they remain within acceptable credit limits. Generally hotels decide an internal credit limit for all guests to whom charge privileges are extended. Hotel’s internal limit of credit is known as House Limit.
Front office must keep a track of all accounts approaching the house limit. Such accounts are known as High Balance accounts. Guests with high balance accounts must be requested to make a partial payment to reduce the outstanding account balance. In larger hotels, there may be a full time credit manager to review high balance accounts. In small hotels this responsibility is given either to the front desk manager or to the accounting division.
A folio is used to record transactions which affect a front office account balance. Guest folios must be accurate, complete and properly filed since guests may inquire about their account balance or checkout of the hotel with little or no advance notice. Transaction postings adhere to a basic front office accounting formula. The accounting formula is :
Previous balance + debits – credits = net outstanding balance
A transaction initiates activity within the front office accounting system. From an accounting perspective, nothing happens until a transaction occurs. Each type of transaction will have a different effect on the front office accounting system. Each transaction is communicated to the front office through the use of different types of vouchers. A transaction can be classified as
1. Cash payment: Cash payments made at the front desk to reduce a guest’s net outstanding balance are posted as credits, thereby decreasing the balance of the account. The front office uses a cash voucher/ cash receipt to support such transactions.
2. Charge purchase: Charge purchase represent deferred payment transactions. The guest receives goods and services from the hotel but does not pay for them at the time they are provided. A charge purchase increases the outstanding balance of a folio. A charge voucher also known as account receivable voucher is prepared to document charge transactions. Charge purchase is basically a credit purchase by the guest and charge vouchers are handed over to the guest at the time of check out.
3. Account correction: It resolves a posting error on the folio. By definition, correction is made on the same day the error is made, that is, before night audit. Account correction can either increase or decrease the balance, depending on the error. A correction voucher is used to document an account correction.
4. Account allowance: It involves two types of transactions. One type of transaction is when an error in posting is detected after the night audit. Another type is a decrease in a folio balance for such purposes as compensation for poor service or discounts given for dissatisfactory product or service. An allowance is prepared which usually requires management approval.
5. Account Transfer: It tends to involve two different accounts and have an off-setting impact on subsequent account balances. For eg. when one guest offers to pay a charge posted to another guest’s folio, the charge will need to be transferred from the first account to a second account. A transfer voucher supports this transaction.
6. Paid out: The difference between a paid out and other types of transactions are that, paid out reflects cash flow out of the hotel, either directly or on behalf of the guest. These transactions are considered debit transactions, since they increase a folio’s outstanding balance. For eg, a guest may request the delivery of flowers and the front office at the time of accepting the delivery pay for the flowers as the guest most likely will not leave the money at the front desk for this purpose. Payment by the front office constitutes a cash advance on the guest’s behalf. The front office may pay for the delivery on the presumption that the guest will reimburse the front office.
Internal control in the front office involves:
· Tracking transaction documentation
· Verifying account entries and balances
· Identifying vulnerabilities in the accounting system
Auditing is the process of verifying front office accounting records for accuracy and completeness. Each financial interaction produces paperwork which documents the nature and amount of the transaction. For example, consider the transaction that occurs when a guest charges a meal to his individual folio. This transaction will likely be supported by the restaurant’s guest check, cash register recording, and charge voucher. The charge voucher is prepared at POS and sent to the front office as notification of transaction. In a semi-automated front office a front desk agent, in turn, retrieves the guest’s folio , posts the charge purchase transaction, refiles the guest folio , and files the charge voucher. Later that day, the front office auditor ensures that all vouchers sent to the front office have been properly posted to the correct accounts. In the case of this example , the auditor will match the front office total of charges from the dining room to the total reported by the dining room. Discrepancies in accounting procedures are easy to resolve when complete documentation is readily available to substantiate account entries.
The front office is responsible for a variety of cash transactions which may affect both guest and non-guest accounts. Proper cash handling procedures and controls must be established, implemented and enforced.
Most non-automated or semi-automated operations require front office cashiers to complete a front office cash sheet that lists each receipt or disbursement of cash. The information contained on a front office cash sheet is used to reconcile cash on hand at the end of a cashier shift with the documented transaction which occurred during the shift. A front office cash sheet provides separate columns to record transactions affecting guest accounts, non-guest accounts , and miscellaneous transactions.
The most common entry on a front office cash sheet is the money collected from departing guests during check-out. When guests pay on their accounts , the cashier typically records the amount paid ,the room number ,and the folio number on the front office cash sheet.
The front office cash sheet also provides space for itemizing cash disbursements or paid outs. These are the transactions when front office pays on behalf of the guest. Since the amount of cash on hand at the front desk will be lowered by the amount paid to the recipient , the front office accounting system must be capable of tracking this type of transaction.
A number of front office audit controls ensure that front office staff properly handle cash, guest accounts, and non- guest accounts. Publicly held lodging companies are required to have their accounting records audited yearly by independent certified public accounts. In addition, companies may have their own internal auditors for control purpose. In both the cases a report is prepared for ownership and management.
Cash bank is also known as float or imprest. It is an amount of cash assigned to a cashier so that he can handle the transactions that occur during a particular work- shift. Good control procedure generally require that cashiers sign for their bank at the beginning of their work-shift and that only the person who signed for the bank have access to it during the shift. At the end of a shift, each front office cashier is solely responsible for depositing all cash [including foreign currency] and all negotiable instruments [such as paid out vouchers] in a specially designed front office cash envelope. The cashier normally records the contents of the front office cash envelope on the outside of the envelope before dropping it into the vault. From an internal control perspective, at least one other employee should witness this procedure and both of the employees should sign a log attesting the drop was actually done and stating the time of the drop.
Monitory 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 overages, shortages or due banks [ also known as due backs].
An overage occurs when after the initial bank is removed, the total of cash and negotiable instruments in the drawer is greater than the net cash received. A shortage occurs when the total of the contents of the drawer is less than the cash receipts. A due-bank occurs when a cashier pays out more than his bank and he does not have enough cash in the drawer for the cash drop. They are generally unusual in the front office.
Bank is restored to its original value at a fixed time during the day by the general accounts department.
Changes in technology and guest needs have prompted front offices to develop alternatives to standard check out and account settlement procedures. These options combine advances in technology with special guest services to expedite departure activities.
Guests may encounter long lines at the front desk when trying to check out during prime check out period. To ease front desk volume some front offices initiate check out activities before the guest is actually ready to leave. A common pre departure activity involves producing and distributing guest folios to the guest expected to check out. Front office staff may quietly slip printed folios under the guest room doors of expected check outs, making sure that the guest’s folio cannot be seen or reached from outside the room. In this process, guest must an express check out form at the time of registration or during his stay. Express check out is possible only if the guest is settling is his bill using his credit card. By completing an express check out form, guest authorizes the front office to transfer his outstanding folio balance to his credit card account/credit card charge slip which was created during registration. Such guests after verifying their folio may just sign it and leave it at the front desk before departing from the hotel. After the guest has left, the front office completes the guest’s check out by transferring the outstanding guest folio balance to a previously authorized method of settlement. Any additional charges the guest makes before leaving the hotel will be added to his folio. Due to these possible late charges, the amount on guest folio may not equal the amount charged to the guest on his credit card account. This possibility should be clearly stated on the express check out form to minimize later confusion.
In some hotels, guests can check themselves out of the hotel by accessing self check out terminals in the lobby area or by using an in-room system. Self check out terminals or in-room systems are connected with the front office computer and are intended to reduce check out time and front desk traffic. Self check out terminals vary in design. Some resemble ATM machines, while others possess video and audio qualities.
To use a self check out terminal the guest accesses the proper folio and reviews its contents. Guests may be required to enter a credit card number by using a keypad or by swiping the credit card through a magnetic strip reader attached to the terminal. Settlement can be automatically assigned to an acceptable credit card and a zero balance folio gets printed out. A self check out system should then automatically communicate updated room status information to the front office department. The front office system, in turn, relays room status information to the house keeping department and initiates action to create a guest history record.
In-room folio review and check out usually relies on the television set provided in the room with a remote control. The guest can confirm a previously approved method of settlement to the in-room television which is connected via computer to the front office. The front office computer directs the self check out process. Guests can pick up a printed folio copy at the front desk on their way out. Another advantage of this system is that guests can look at their folios at any time during their stay without having to stop by the front desk.
Accounting System’s in Front Office Department
In this operating mode all the phases involved in accounting process are carried out by the staff manually. This system is useful for small hotels only where the workload is not much. The entire system is prone to omission and computation error. Another drawback is handling and re-handling of numerous data. Guest folios in a non-automated or manual system contain a series of columns for listing individual debit (charge) and credit (payment) entries accumulated during occupancy.
This system is used by hotels which are medium-sized or large but yet don’t have fully automatic machines like computers. Usually they use a combination of office machines, clerical equipments and manpower to operate these systems. Various machines are used. This system is also prone to errors.
This system primarily comprises of computers and other electronic devices located at every P.O.S and interfaced with the main cashier. All phases that is creation of vouchers, and other documents, posting of the transaction made by the guest at various point of sales, transaction for posting, checking of accuracy, auditing, finding and correction of errors and making of bills, etc. are done through computers. All other documents such as sales journal, accounts receivable and payable are also done by automatic machines. This system is very fast and hence there is no chance of errors. This system takes approximately 1/10 time as compared to manual system and the same time needs limited staff. Point of sale transactions may be automatically posted to an electronic folio when a printed copy of a folio is needed, debits (charges) and credits (payments) may appear in a single column with payments distinguished by parentheses or a minus sign.
Importance of Accounting in hotel front office
1. Being familiar with company procedures and accounting needs and being able to identify customer needs facilitates efficient work practices and promotes guest satisfaction.
2. When proper, clear information is provided to guests, it prevents the occurrence of unpleasant surprises to guests in the form of unexpected charges, etc. that are sure to disturb them and cause unnecessary arguments and delays, especially at check out.
3. Also, guest accounts must be updated regularly with charges and adjustments because this impacts on company profits in the following ways:
a) Accounts are kept up to date with the minimum of effort. This impact positively on productivity and efficiency.
b) To minimise the chances of the guest departing before all charges have been posted.
c) This would save on costs of contacting the guest and losing out on payments especially with foreign guests.
d) To reassure guests that their accounts are being managed accurately and efficiently. A satisfied guest implies repeat business.
4. Security purposes: to prevent unauthorized access and the tampering of accounts, such as, the creation of false revenue and fraudulent charges and adjustments to guest accounts.
5. Inaccurate transactions: The presence of unauthorised persons in one’s work area increases the risk of inaccurate transactions. Not only will the company suffer from account imbalances and profit losses, but the guest may be upset at having incorrect charges etc. This affects guest satisfaction, which in turn affects repeat business.
6. Personal accountability: Front desk staffs that handle and process guest accounts are responsible and accountable for computer transactions and for the filing and storage of account documentation while on duty.
7. All guest information is confidential: this includes account information, and unauthorised persons must not be allowed access to such information.
Front Office Accounting Cycle
An important function of the FOAS is to maintain of accurate and up-to-date record of all the financial transactions between the hotel and each guests. The front office accounting cycle ha three distinct phases as follows:
2. Maintenance of accounts
3. Settlement of accounts
A guest account is created when the first financial transaction between the hotel and guests takes place. It may take place at:
· The time of reservation, if guests make an advance payment.
· At the time of registration.
B. Maintenance of accounts
Once the guest account is opened for the guest the next phase is, keeping track of and recording all financial transactions during the stay of a guest. It includes all purchases and the use of chargeable goods & services offered by the hotel.
C. Settlement of accounts
Preparing and presenting the final bill, and collecting the payment from the guest. This is generally done at the time of guest checkout from the hotel.
Accountancy requires a set of principle for recording, classification, summarisation and interpretation of business transaction. This principle must be acceptable to the business audits, government agencies basically IT department, stock exchanges etc. The need of Generally Accepted Accounting Principle (GAAP) is spent for 2 reasons for bringing uniformity in the established practices, for bringing consistency and establish recording of transactions.
Principles need a guiding rule. The subject of accounting has certain convention, standard language and terminology to enable parties to understand in the same sense as called GAAP. This can be discussed under two headings:
2. Convention of accounting
1.) Concept of accounting
a. Concept of separate entity:
This concept state from accounting point of view, business is always treated as separate entity apart from owner.
b. Concept of going concern:
This is also known as concept of continuity a/c. To this concept, it is assumed that the business will be carried on for long period.
A company is supposed to be an artificial person having a perpetual life.
c. Concept of dual aspect:
This concept suggests that all business transactions must be entered in such a manner that each transaction affects two a/c simultaneously.
For e.g., if goods are purchased for ease, purchased a/c will be debited and cash account will be credited.
d. Concept money measurement:
A/c to this concept only those business transactions are recorded which can be measured in terms of money. The non-monitoring event however important they may be for the business will not be recorded.
For e.g., death of the general manager may be unfortunate for the business but it will not be accountant for.
e. Concept of cost A/c to the concept:
i. As asset is ordinarily recorded in the book at cost, i.e., price paid acquires rate.
ii. This cost become basis for subsequent accounting for the asset.
For e.g., is business buy machinery for Rs. 1 lakh, it would be recorded in the book at Rs. 1 lakh. It will ordinarily continue shown at Rs. 1 lakh (after charging depreciation) even though market price that machinery have filled or gone up in the subsequent year.
f. Concept of accounting period
In this concept, the accounting period suggests that instead of knowing the final profit or less and final financial position of the business like this should be known as accounting period.
In Indian reference, an accounting year may be a calendar year or a financial year.
g. Concept of realisation
A/c to this concept revenue is realised when sell is made. Legally sell is supposed to be made at the time when ownership all property in goods passes from sellers to buyers.
h. Concept of making the revenue and cost
The concept states that income of particular period should be certain by matching or comparing the sell must be considered for the purpose.
i. Concept of verifiability (evidence)
This concept states that all accounting transactions should be supported by necessary document with the help of which the truthfulness of the transaction can be verified.
2.) Convention of accounting
i. Convention of full disclosure:
This convention suggests that accountants should prepare and present the reports disclosing full information regarding financial results and financial positions.
ii. Convention of conservation:
This convention means that there has been a practice of the accountants to follow the policy of playing safe. In other words they follow the rule,” anticipate no profit but provide for all possible loss.”
iii. Convention of consistency:
This convention suggests that a particular practice once adopted for same accounting aspect should be maintained from year to year and should not be charged without any solid reason.
iv. Convention of materiality:
It means important. According to this convention, an accountant is expected to disclose all material or important facts and he can ignore the immaterial or unimportant details.
v. Convention of objective:
This convention emphasises that accounting information should be objective i.e. it should be expressed and measured by the standards which are commonly used.
