1. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 1 7100. General Accounting Procedures, 7171 Inventories A. The Purpose of This Policy The posting of inventory accounts is an important part of accrual accounting, because inventories affect some cost-of- goods categories and some departmental direct expenses. This policy describes how we handle inventory accounts to achieve consistent and accurate financial reporting. Continue

2. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 2 7100. General Accounting Procedures, 7171 Inventories B. The General Managers Responsibility The general manager is responsible for assuring that department supervisors take inventories that are timely and accurate. The general manager is also responsible for assuring that inventory are accurately extended, totaled and recorded according to the schedule in the Hotel-specific Accounting Information Guide. He or she is also responsible for promptly submitting these inventories to the accountant. Where applicable, the housekeeping supervisor takes linen inventories; the guest services manager takes sundry inventories; and the director of food and beverage takes food and beverage inventories.Hotel-specific Accounting Information Guide Continue

3. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 3 7100. General Accounting Procedures, 7171 Inventories C. Inventory Accounts Where applicable, we list the following inventory accounts as assets on the Balance Sheet:Balance Sheet Restaurant and banquet food: Use where restaurant and/or banquet services are provided. Breakfast (complimentary) food: We routinely take inventory of breakfast food only for determining the quantities of food to be purchased, but we report a detailed inventory of breakfast food at the end of every year. Throughout the year, we report a fixed amount for breakfast food on the Balance Sheet. This amount is changed for the year-end financial statements to report the actual value of the breakfast food and the actual cost. (Note, the general manager may, at his or her choice, take month-end inventories of breakfast food to measure the actual cost, but these inventories are not reported on the financial statements.)Balance Sheet Continue

4. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 4 7100. General Accounting Procedures, 7171 Inventories C. Inventory Accounts (cont.) Beverage: Where applicable, we take a detailed inventory of all liquor, beer, wine and mix at midnight on the last day of every month. We inventory unopened and opened bottles of liquor to the nearest one-tenth of a bottle. Rooms linen and terry: On the last day of every month we inventory the highly consumable linen and terry items for the rooms department, including all sheets, pillow cases, towels (including pool towels), bath mats and wash clothes. We calculate the value of these products as follows: Unused, un-circulated linen and terry: 100% of the purchase price Circulated (in use or washed) linen and terry: 50% of the purchase price Continue

5. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 5 7100. General Accounting Procedures, 7171 Inventories C. Inventory Accounts (cont.) We do not take the inventory (for financial reporting purposes) of linen and terry that are consumed more slowly, such as blankets, mattress pads, pillow covers, pillows and bedspreads. These items are expensed in the month they are purchased or accrued over several months. Sundries: At midnight on the last day of every month, we take a detailed inventory of all items available for sale in the sundry shop. We report the value of this inventory on the Balance Sheet.Balance Sheet Continue

6. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 6 7100. General Accounting Procedures, 7171 Inventories C. Inventory Accounts (cont.) We do not take inventory of (for purposes of financial reporting) or report the following as assets. The following are expensed in-full or in-part for the month they are put into service: Banquet linen Guestroom bath amenities Guest supplies Laundry chemicals Pool chemicals Postage stamps and postage on the postage meter Sales printed (collateral) materials Continue

7. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 7 7100. General Accounting Procedures, 7171 Inventories D. Inventory Procedures Use preprinted inventory sheets to take physical inventories. Use Excel ® spreadsheets to report and calculate the value of the inventories. The general manager reviews and submits detailed inventory sheets to the accountant no later than noon on the third business day of every month. Continue

8. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 8 7100. General Accounting Procedures, 7171 Inventories E. Calculating Cost of Goods and Direct Expenses For most expense items, the accountant records the entire amount of the purchase (including tax and freight) to the expense line for the financial period in which the goods or services are received. But the procedure is different for the inventory items listed above. To calculate the cost of goods and expense of inventoried items listed use the following formula for each financial period: Opening inventory, plus purchases, plus/minus adjustments, minus ending inventory equals cost of goods. Continue

9. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 9 7100. General Accounting Procedures, 7171 Inventories E. Calculating Cost of Goods and Direct Expenses (cont.) Following is an example: In the above example, the cost of goods was $4,100 for the period, although only the value of $3,800 of goods were purchased during the period, because the inventory decreased $300. Adjusting entries may be made for any number of reasons, such as product purchased as beverage but used for cooking. Continue Opening inventory$10,400 Purchases made during the period3,800 Total available inventory14,200 Ending inventory10,100 Cost of goods (or direct expense)4,100

10. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 10 7100. General Accounting Procedures, 7171 Inventories F. Accounting Entries for Inventoried Items The accounting software automatically calculates the formula described in the prior section when you correctly make the inventory postings. Make the following transaction postings to post the entry of an inventory item: Debit: The inventory account Credit: The bank account from which the payment was made At the end of the financial period post the decrease in the value of the inventory (as a positive number) or the increase (as a negative number) as follows: Debit: The expense account Credit: The inventory account End

11. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 11 7100. General Accounting Procedures, 7171 Inventories