FRONT OFFICE ACCOUNTING
Need for accounting system at Front Office-To monitor and chart all the transactions that take place between the hotel and others i.e. resident guests, companies, agencies, non-resident guests etc.
ACCOUNTING FUNDAMENTALS
- the functions of Front Office Accounting System are:
01. To create and maintain an accurate accounting record for each guest/ non-guest account. 02. To track financial transactions throughout the guest cycle.
03. To ensure internal control over cash & non-cash transactions. 04. To record settlement for all goods & services provided.
Note : Guest means Resident guest and Non-guests means Non-resident guest, conferences, former guest unpaid.
Guest Cycle : The phases or stages through which a guest passes during his/ her stay in a hotel.
Guest Cycle
Front Office Functi
ons
Guest Services Guest Accounting
Pre-Arrival Reservation ---Arrival Registration Establishment of Credit
Occupancy Occupancy Services posting of Charges
Night Audit Departure Checkout & History Settlement
Though the principles of accounting are the same, hotels follow their own procedures, terminology & report formats.
Accounts:
An account is a form on which financial data are accumulated and summarized. 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.
The simplest form an account resembles the letter T –
Charges Payments
Front Office accounting documents typically use a Journal form in non-automated or semi-automated record keeping system that looks like:
Description of Account Charges Payments Balance
In Front Office, accounts are segregated into two categories.
a. Guest Account – is a record of financial transactions that occur between a guest and the hotel.
Created - a. during registration, b. when reservations are guaranteed. _
Front Office is completely responsible for it during guest occupancy. Updated on a daily basis.
Settlement - a. on guest checkout, b. when the account exceeds credit limit. b. Non-guest Account - Between a non-guest and the hotel.
Also called as House accounts/ City accounts
Accounts of guests failing to settle their bills on departure are also included in this (besides those of non-residents like companies, agencies, groups or individuals with credit privileges)
Collection & billing is the responsibility of Accounts Department! Credit (Control) Department. Billed on monthly basis.
Folios:
- a statement of transactions (debits and credits) affecting the balance of a single account.
- it begins with a ZERO balance and ends with the SAME. In between, the balance may be debit or credit depending upon the type of transactions.
Posting:
- it is the process of recording transactions on a folio. Methods of posting are as under: a. Non-automated system: Hand-written on a Paper Folio.
b. Semi-automated system: Machine posted on a Paper Folio
c. Automated system: Electronic Folios are maintained on a Computer. Types of Folio:
-a. Guest Folio- accounts assigned to individual persons or guest rooms.
b. Master Folio- for more than one person/ guestroom. Usually for Group Accounts. c. Non-guest or Semi-permanent Folio: for non-guest businesses/ agencies with charge purchase privileges.
d. Employee Folio: for employees with charge purchase privileges.
There are more folios created by hotels to accommodate special circumstances/ requests e.g. room folio (A folio) for Room+Tax and incidental folio (B folio) for food/ beverages and other charges.
Why all folios must have a unique serial number?
01. It acts as an identification number & ensures that all the folios are accounted for. 02. Folio numbered may be used to index information in automated systems.
03. In semi-/non-automated system, folio lengths are fixed. When a balance is carried forward to a new folio, the old folio number has to be shown as reference of where the balance originated. Vouchers:
- a voucher details the transactions to be posted to a front office account.
- it lists the detailed transaction information gathered at the source of transaction, such as any F & B outlet, gift shop.
Types of vouchers: 1. Cash Voucher 2. Charge Vouchers 3. Transfer Vouchers 4. Allowance Vouchers 5. Paid-out Vouchers Point Of Sale:
- the location in a hotel where goods or services are purchased (e.g. restaurants, bar, laundry, gym etc.).
- Any hotel department that collects revenue for its goods or services is considered a revenue center and, thus, a point of sale.
- there are guest operated devices that also function as point of sale e.g. mini-bar, dispensing/ vending machines.
POS System:
- a computerized system that allows remote terminals at the points of sale to communicate directly with a Front Office Computer System.
- basic Information to be provided by a point of sale:
a. Voucher/ Transaction Number b. Amount of Charge c. Name of outlet d. Room No. & Guest Name e. Brief Description of Charge Ledger:
- is a summary grouping of accounts.
Guest ledger:
- the set of guest accounts that correspond to registered hotel guests.
- also called as Transient Ledger or Rooms Ledger or Front Office Ledger. Non-Guest Ledger:
- it is the collection of non-guest accounts.
- it includes all non-cash settlements, skipper accounts, disputed bills & non-guest functions.
CREATION & MAINTENANCE OF ACCOUNTS
- it is the responsibility of Front Office to record all transactions that affect guest-ledger and non-guest accounts accurately and completely.
- Guest folios are created during reservations process or at the time of registration.
- for Folio creation, the necessary information is taken from reservation & registration records.
- for pre-numbered folios, the folio number is entered on to the registration card and vice-versa for cross-referencing.
- Manually-/ machine-posted folios are stored in a front desk folio tray (also known as posting tray/ folio well/ buckets).
- electronic Folios are automatically cross-referenced with other records within the system. This considerably reduces transactional accounting errors.
Record keeping Systems:
- the folio formats of guest and non-guest account may be different and depends on the record keeping system:
a. Non-automated system:
- Guest folio in a manual system contains a series of columns listing individual debit/ credit entries accumulated during the occupancy.
- at the end of the financial day, each column is totalled and the ending balance is carried forward as the opening folio balance for the following day.
b. Semi-automated system:
- Guest transactions are sequentially printed on a machine posted folio.
- The information recorded for each transaction includes the date, department code/ check no., amount of transaction and the new balance of the account.
c. Automated system:
- Electronic folios are maintained on the computers.
- POS transactions may be automatically posted to an electronic folio.
- Computer based systems maintain accurate current balances for all the folios. Charge Privilege:
- A guest may be required to present an acceptable credit card or a direct billing authorization at the time of registration ( or at the time of reservation in fully automated hotels)
- Guests are authorized to make charge purchases once a line of credit has been established (through Direct Billing Authorizations or Credit Cards).
PIA Guests or Paid-in advance
- Guests who pay cash for accommodation at the time of registration.
- Generally charge purchase privileges not given.
Credit Monitoring:
- A major task of Front Office is to ensure that all guest & non-guest accounts are within acceptable credit limits.
- FOM & Night Auditor are responsible for identification of such High Balance Accounts & necessary action. In large hotels, there is a credit manager for reviewing such accounts. He/ she is also responsible for settlement of city ledger accounts.
Account Maintenance
- Guest folios must be accurate, complete and properly filed since guests may enquire about their balance or check out in a hurry.
- Transaction Postings conform to the Basic Front Office Accounting formula –
Previous balance + debits - Credits = Net Outstanding Balance PB + DR - CR = NOB
TRACKING TRANSA TIONS or (TRANSACTIONAL ACCOUNTING SYSTEM)
- Charge purchase transactions must be correctly documented to properly maintain accounts.
- Front Office Accounting being a transactional accounting System, we rely on accounting vouchers as a reliable set of documentation for these transactions even in automated systems.
- A Transaction initiates activity within the front office accounting system.
(In other words nothing happens in FO Accounting until a transaction occurs – that is why it is known as Transactional Accounting System.)
- The different types of transactions have different effects on the accounting system and are communicated to Front Office through different types of vouchers:
Transaction Effect on Guest Account Voucher Used
Cash Payment Posted as credits. Decrease the net outstanding balance (NOB) of guest account
Cash Voucher Charge Purchase Posted as debits. Increase the NOB of guest account. Charge Voucher
Account Correction Resolves posting errors before closing. May increase or decrease NOB.
Correction Voucher Account Allowance For errors after closing or Poor service compensation.
Decrease NOB.
Allowance Voucher Account Transfer For transfer from a guest account to another guest
account or to city ledgers.
Transfer Voucher Cash Advance Posted as debits. Increase the NOB. Cash Advance Voucher
INTERNAL CONTROL
Internal Control in Front Office involves:-a) Tracking transaction documentation. b) Verifying account entries and balances.
c) 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 money amount of the transaction.
- Receiving & posting charge voucher transaction, matching with reports from POS’s etc. FRONT OFFICE CASH SHEET
- Front Office is responsible for a variety of cash transaction
- Need of Proper cash handling procedures and controls
- This format lists all the cash receipts (e.g. money received at the time of check out) & disbursements (e.g. paid-outs) at the front desk.
- The information contained on this sheet is used to reconcile cash on hand at the end of a cashier's shift with the documented transactions 'that occurred during the shift.
- It provides separate columns to record transactions affecting guest accounts, non-guest accounts(or city ledgers) and miscellaneous transactions.
(Formats in Next handout.) CASH BANKS
- Second set of front office accounting control procedure
- Cash bank is an amount of cash assigned to a cashier so that he/ she can handle the various transactions that occur during the shift.
- Cashiers' sign for their bank at the beginning of their shift and the person signing alone has an access to it during the shift.
- At the end of the shift, each cashier is solely responsible for depositing all cash, cheques & other negotiable instruments received during the shift.
- Also, the cashier separates out the amount of the initial cash bank and places the remaining in a front office cash envelope.
- The cashier itemizes & records the contents of the cash envelope on the outside of it & (theoretically)
drops it in to the Front Office Vault.
- From internal control point of view, there should be a witness to it.
Net Cash Receipts: The amount of cash, cheques & negotiable instruments in the cashier's drawer minus the amount of initial cash bank plus the paid outs. The difference between the Net Cash Receipts & the money placed in the F.O. Cash Envelope is noted on it as:
a) Overage : Total > Net Cash Receipts b) Shortage: Total < Net Cash Receipts
c) Dueback: The cash bank depletes and this amount is due back to the cashier from accounts department. (Cashier pays out more than he/ she receives in other words no enough money in the drawer). AUDIT CONTROLS
- Most of the hotels have internal as well as external annual audits performed by chartered accountants.
- This is done to ensure that all accounts are being properly handled by the staff concerned.
- A report is prepared.
SETTLEMENT OF ACCOUNT
- The collection of payments for outstanding account balances is called account settlement.
- Bringing an account balance to zero.
- All guest accounts must be settled on checkout either through cash payments or transfer to approve direct billing account/ credit card account.
