Chapter 8: Front Office Accounting

Chapter 8: Front Office Accounting
Competencies for Front Office Accounting
1. Summarize front office accounting fundamentals,
including issues surrounding accounts, folios, vouchers,
points of sale, and ledgers.
2. Describe the process of creating and maintaining front
office accounts.
3. Describe typical procedures for processing and tracking
common front office accounting transactions.
4. Describe internal control procedures for front office
operations and explain typical settlement procedures.
Managing Front Office Operations PowerPoint
1

Front Office Accounting Fundamentals
• Create/maintain accurate account records
• Track financial transactions
• Ensure internal control
• Record settlement
• Accounts
• Folios
• Vouchers
• Points of sale
• Ledgers
2

Accounts
• An account is a form on which financial data are accumulated
and summarized.
• An account may be imagined as a bin that stores the results of
various business transactions.
• Increases and decreases in an account are calculated and the
resulting monetary amount is the account balance.
• Any hotel financial transaction may affect several accounts.
• In a T-account, charges are increases to the account balance
and are entered on the left side of the T; payments are
decreases and are entered on the right side.
Continued
3a

Accounts Continued from previous slide…
• The account balance is calculated by subtracting the T-account
right-side total from the left-side total.
• The left side of an account is called the debit (dr) side; the
right side is called the credit (cr) side.
• In a non-automated or semi-automated recordkeeping
system, an account journal includes the following information:
description of account, charges, payments, and balance.
• Most front offices now use automated systems.
• In a fully automated system, charges and payments may be
listed in a single column with the amounts of payments placed
within parentheses or noted with minus signs.
3b

Guest and Non-Guest Accounts
Guest accounts:
• A guest account is a record of financial transactions that occur
between a guest and the hotel.
• Guest accounts are created when guests guarantee their
reservations or when they register at the front desk.
• During occupancy, the front office is responsible for and
records all transactions affecting the guest account.
• The front office usually seeks payment for any outstanding
guest balance during the settlement stage of the guest cycle.
Continued
4a

Guest and Non-Guest Accounts Continued from previous slide…
Non-guest accounts:
• Non-guest accounts are created to track deferred transactions.
• Examples of non-guest accounts: (1) a hotel may extend charge
privileges to local businesses/agencies, and (2) a hotel may offer in-house
charge privileges to groups sponsoring meetings at the hotel.
• Non-guest accounts set up for local businesses/agencies are called
house accounts or city accounts; accounts set up for groups are
called master accounts.
• A non-guest account may also be created when a guest fails to
settle his or her account at the time of departure; the responsibility
for account settlement then shifts from the front office to the back
office accounting division.
4b

Folios
• Front office transactions are typically charged 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 that increase (debits) or decrease (credits) the
balance of the account are recorded on the folio.
Continued
5a

Folios Continued from previous slide…
• At settlement, a guest folio should be returned to a zero
balance by cash or by transferring the balance to an approved
payment card or direct billing account.
• The process of recording transactions on a folio is called
“posting.”
• A transaction is posted when it has been recorded on the
proper folio in the proper location, and a new balance has been
determined.
5b

Types of Folios
• Guest folios
• Master folios
• Non-guest or semi-permanent folios
• Employee folios
• Permanent folios
• Split folios
6

Vouchers
• A voucher details a transaction to be posted to a front office
account.
• A voucher lists detailed transaction information gathered at the
source of the transaction (e.g., a hotel dining room or gift shop).
• Vouchers are sent or electronically transferred to the front office
staff or system for posting.
• Types of vouchers used in front office accounting: cash, charge,
transfer, allowance, and paid-out.
• Most automated front office systems require few paper vouchers.
7

Points of Sale
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).
Continued
8a

Points of Sale Continued from previous slide…
• 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.
8b

Guest/City Ledgers
A ledger is a summary grouping of accounts. The front office
commonly separates accounts receivable into two subsidiary groups:
the guest ledger (for guest receivables) and the city ledger (for non-guest
receivables).
Guest ledger:
• Holds accounts of registered guests
• Holds accounts of advance deposits from future guests (credit
balance)
• Front office collects
City ledger (non-guest ledgers):
• Holds guest ledgers not paid in full at check out
• Accounting department collects
9

Creation and Maintenance of Accounts
• The task of accurately and completely recording all transactions
that affect guest ledger accounts is the responsibility of the front
office staff.
• The front office may also be responsible for recording transactions
affecting non-guest accounts (although usually the back office
accounting division is responsible for settling these accounts).
• Guest folios are created during the reservations process or at the
time of registration.
• In an automated system, guest information is automatically
transferred from an electronic reservation record or captured at
registration and entered onto an electronic folio.
Continued
10a

Creation and Maintenance of Accounts Continued from previous slide…
• Electronic folios are automatically cross-referenced with other
property management system records.
• Automated systems can track an unlimited number of postings in
each account.
• At check-in, reservations data are verified and combined with
room rate information and the guest’s room number to finalize
an in-house electronic folio.
• Electronic folios reduce the possibility of transactional account
entry errors, as information need be handled only once.
10b

Automated Recordkeeping Systems
• Point-of-sale transactions may be automatically posted to an
electronic folio.
• It is unnecessary to manually maintain an account’s previous
balance in a fully automated system, since automated systems
maintain current balances for all folios.
11

Charge Privileges
• 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.
Continued
12a

Charge Privileges Continued from previous slide…
• 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.
12b

Credit Monitoring
• 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.
Continued
13a

Credit Monitoring Continued from previous slide…
• 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.
• Some hotels may employ a full-time credit manager to review
high-risk accounts.
13b

Account Maintenance
• Guest folios must be accurate, complete, and properly filed,
since guests may inquire about their account or check out of
the hotel with little or no notice.
• Transaction postings must conform to a basic front office
accounting formula:
Front Office Accounting Formula
Previous Balance + Debits – Credits = Net Outstanding Balance
• Debits increase the account balance, credits decrease the
account balance.
14

Tracking Transactions
• Charge purchases must be correctly documented.
• Front office staff members may rely on electronic vouchers for
support documentation.
• Transactional information from remote points of sale must be
correctly communicated to the front office system.
• A front office audit is intended to verify transactional data.
• A transaction initiates activity within the front office
accounting system.
15

Types of Front Office Transactions
• Cash payment
• Charge purchase
• Account correction
• Account allowance
• Account transfer
• Cash advance
16

Cash Payment
• Cash payments to reduce a guest’s outstanding balance are posted
as credits to the guest or non-guest account.
• Front office personnel may use a cash voucher to document cash
received.
• Only cash payments made at the front desk will create entries that
appear on a front office account folio; when cash payments are
made at other hotel locations, they are accounted for at the point
of sale.
• Personal checks should be treated as cash; they need to be carefully
scrutinized.
• Checks should be paid in local currency.
• Many hotels subscribe to a check guarantee service to ensure that
the personal checks they receive are authentic.
17

Charge Purchase
• A charge purchase represents a deferred payment transaction.
• If a charge purchase occurs somewhere other than the front
desk, it must be communicated to the front desk system for
proper folio posting; in non-automated systems, this is done
through a charge voucher (also referred to as an account
receivable voucher).
• Guests may charge purchases to their guestroom account when
shopping in hotel retail outlets; merchants in these outlets
must ask guests to present a room key and other forms of
identification.
Continued
18a

Charge Purchase Continued from previous slide…
• In hotels with automated systems, merchants can use the
system to verify that a guest has an authorized guestroom
account; if the account has a no-post status, the system will
not accept the guest’s charge(s).
• Hotels often are not liable for retail charges presented for
posting after a guest has departed.
18b

Account Correction
• An account correction transaction resolves a posting error on
a guest or non-guest folio.
• Account corrections are made on the same day as the error is
discovered, before the close of business.
• An account correction can either increase or decrease an
account balance.
• A correction voucher is used to document an account
correction transaction.
• Usually the staff member posting the correction signs the
correction voucher and presents it to the front office manager
or supervisor on duty for review and approval.
19

Account Allowance
• Account allowances involve two types of transactions.
• One type of account allowance is a decrease in the folio balance as
compensation for poor service or as rebates for coupons and/or
other discounts.
• Another type of account allowance corrects a posting error
detected after the close of business. These error corrections must
also be entered into the accounting records of the affected revenue
centers.
• An account allowance is documented by the use of an allowance
voucher; allowance vouchers usually require management
approval.
• Usually the staff member posting the allowance signs the allowance
voucher and presents it to the front office manager or supervisor
on duty for review and approval.
20

Account Transfer
• Account transfers involve two different guest or non-guest
accounts and tend to have offsetting impacts on subsequent
account balances.
• Example: 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 the reduction in balance on the
originating folio and the increase in balance on the
destination folio.
21

Cash Advance
• Cash advances reflect cash flow out of the hotel’s resources, either
directly to, or on behalf of, a guest.
• Cash advances are considered debit transactions, since they increase a
guest folio’s outstanding balance.
• Cash advances are supported by cash advance vouchers.
• Cash disbursed by the front office staff on behalf of a guest (and
charged to the guest’s account as a cash advance) is typically called a
paid-out.
• A paid-out reduces the amount of cash held in the front office cash
drawer.
• Paid-outs should require a manager’s approval before the cash is
actually dispersed.
22

Internal Control Functions
• Track transaction documents
• Verify account entries and balances
• Identify vulnerabilities in the accounting system
23

Cash Banks
• 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.
Continued
24a

Cash Banks Continued from previous slide…
• 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.
24b

Net Cash Receipts, Overages, Shortages, and Due Backs
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.
Continued
25a

Net Cash Receipts, Overages, Shortages,
and Due Backs
Shortages:
• A shortage occurs when the total of the contents of the cash
Continued from previous slide…
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.
• Due backs are not unusual in front office operations.
25b

Audit Controls
• Publicly held lodging companies are required to have both
their front and back office accounting records audited yearly
by an independent certified public accountant.
• Hotel companies with multiple properties often employ
internal auditors who make unannounced visits to individual
properties to review accounting procedures and records.
26

Settlement of Accounts
• The collection of payment for outstanding account balances is
called account settlement.
• Account settlement involves bringing an account balance to
zero as a result of proper payments.
• All guest accounts should be brought to a zero balance at the
time of check-out.
• Guests may make payments against outstanding folio
balances at any time prior to check-out.
Continued
27a

Settlement of Accounts Continued from previous slide…
• Non-guest folio balances may be initially billed on the day of
the transaction; settlement may be due in 15 to 30 days,
depending on the hotel’s policy.
• When a guest account is paid, the folio is updated to indicate
account settlement and closure.
• Sometimes a guest settles an account but a charge is posted
in the system after the account has been closed; this is called
a late charge.
• Guests may dispute or refuse to pay a late charge, which often
results in an account adjustment in the front office accounting
system.
27b

Chapter 8: Front Office Accounting

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Chapter 8: Front Office Accounting