The Accounting Division Chapter 12

Chapter 12 Objectives Define the accounting division within the hospitality industry. Apply generally accepted accounting principles to hospitality situations. Explain the various tools used by the accounting department in hospitality setting. Identify managerial accounting practices used in our industry. Describe activities of the accounting division.

What is Accounting?

What is Accounting? A compilation of financial data into useful reports for Managers to make decisions Activities include recording, classifying, and summarizing financial data Application of basic accounting practices to logically determine operational decisions

What is Accounting? (cont.) Who Manages the Accounting System? Top-Level managers are responsible for the financial stability of the hotel Controllers or Bookkeepers are hired to account and summarize financial results Controllers manage a team of accounting staff Bookkeepers are usually hired in smaller operations

What is Accounting? (cont.) Who Uses Financial Information? Internal Users All managers within the operation External Users Owners and Investors Creditors and Lenders Government Agencies General Public

What is Accounting? (cont.) Technology used in Accounting Automated accounting systems Property Management System or Point of Sales System Computer Software (excel or QuickBooks) Front of House uses system for daily activities which also captures general cash postings Back of House uses system for payroll, collecting on accounts, and preparing financial statements

Accounting Principles & Practices

Accounting Principles & Practices Generally Accepted Accounting Principles Guidelines and rules used to keep standards among various industries GAAP ensures all transactions are recorded and financial statements are prepared consistently

Accounting Principles & Practices GAAP Principles Unit of Measurement Money – will note currency used Historical Cost Actual Costs are posted versus current market values Going Concern Assumption that business will continue to operate

Accounting Principles & Practices GAAP Principles (cont.) Conservatism When in doubt, use conservative, practical amounts Objectivity Supporting documentation to prove all transactions Realization Postings occur when sale has been made and earned

Accounting Principles & Practices GAAP Principles (cont.) Matching Expenses are recording in same period as the revenue Cash Accounting Accrual Accounting Consistency Use consistent accounting practices once adopted

Accounting Principles & Practices Uniform System of Accounts Standardization of formats and account classifications Explains specific line items on each financial report Each type of operation in the hospitality industry will have a Uniform System of Accounts to use

Accounting Tools

Accounting Tools Operating Budgets Formal plan which estimates the operations revenues and expenses Commonly divided into monthly increments Each department should participate in process Used to determine revenue sources Used to determine expenses and control when necessary

Accounting Tools Income Statements Determines actual revenue and expenses during a particular accounting period, typically monthly Identifies the profitability of the operation Can assist management when to control or cut expenses to stay profitable

Accounting Tools Balance Sheets The financial position of the operation on any given day Good report for external users Assets = Liabilities + Equity

Accounting Tools Ratio Analysis Techniques All reports must be able to be analyzed Ratios help to relate the information in a more useful way Useful Ratios include: Food Cost Percentages RevPAR Percentages Return on Investment

Managerial Accounting

Managerial Accounting Part of accounting that uses various analysis techniques and concepts to process historical and forecasted information for planning purposes

Managerial Accounting Internal Controls Procedures and processes adopted by the operation to protect its assets Process of checks and balances Measure of effectiveness to fix problem areas Paperwork to support and control

Managerial Accounting Other Techniques Cost Analysis Evaluation of cost in order to make a decision Cost-Volume-Profit Analysis Chart showing relationship of costs, volume, and profit which will determine a “break even” point Cash Budgeting Cash on hand to pay bills or make investments

Accounting Activities

Accounting Activities Revenue Accounting Posting of all revenues in the accounting system Expense Accounting Recording of all expenses incurred by operation Payroll Paying of employees following all government regulations

Purchasing

Buying of supplies needed by the operation Purchasing Buying of supplies needed by the operation Usually handled by Purchasing Agent or often someone on the accounting team Should buy quality products while controlling costs

Determining product of value and quality The Right Supplier Purchasing The Right Product Determining product of value and quality The Right Supplier Trustworthy and consistent The Right Price Acquiring supplies at the right value The Right Time Maintain par levels and never run out

Purchasing Categories Food Equipment Supplies Services

Buying electronically Central Purchasing E-Commerce Buying electronically Central Purchasing One area for all units to buy supplies Ethics Honesty and making sound decisions for business Supplier Relations Win-Win