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Chapter 9: Check-out & Account Settlement
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Chapter 8: Front Office Accounting

Managing Front Office Operations 9th Edition
Chapter 8 - Front Office Accounting

Chapter 8: Front Office Accounting

  1. 1. 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
  2. 2. Chapter 8: Front Office Accounting Front Office Accounting Fundamentals • Create/maintain accurate account records • Track financial transactions • Ensure internal control • Record settlement • Accounts • Folios • Vouchers • Points of sale • Ledgers Managing Front Office Operations PowerPoint 2
  3. 3. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 3a
  4. 4. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 3b
  5. 5. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 4a
  6. 6. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 4b
  7. 7. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 5a
  8. 8. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 5b
  9. 9. Chapter 8: Front Office Accounting Types of Folios • Guest folios • Master folios • Non-guest or semi-permanent folios • Employee folios • Permanent folios • Split folios Managing Front Office Operations PowerPoint 6
  10. 10. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 7
  11. 11. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 8a
  12. 12. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 8b
  13. 13. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 9
  14. 14. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 10a
  15. 15. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 10b
  16. 16. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 11
  17. 17. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 12a
  18. 18. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 12b
  19. 19. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 13a
  20. 20. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 13b
  21. 21. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 14
  22. 22. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 15
  23. 23. Chapter 8: Front Office Accounting Types of Front Office Transactions • Cash payment • Charge purchase • Account correction • Account allowance • Account transfer • Cash advance Managing Front Office Operations PowerPoint 16
  24. 24. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 17
  25. 25. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 18a
  26. 26. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 18b
  27. 27. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 19
  28. 28. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 20
  29. 29. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 21
  30. 30. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 22
  31. 31. Chapter 8: Front Office Accounting Internal Control Functions • Track transaction documents • Verify account entries and balances • Identify vulnerabilities in the accounting system Managing Front Office Operations PowerPoint 23
  32. 32. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 24a
  33. 33. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 24b
  34. 34. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 25a
  35. 35. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 25b
  36. 36. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 26
  37. 37. Chapter 8: Front Office Accounting 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 Managing Front Office Operations PowerPoint 27a
  38. 38. Chapter 8: Front Office Accounting 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. Managing Front Office Operations PowerPoint 27b
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Managing Front Office Operations 9th Edition Chapter 8 - Front Office Accounting

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