Front Office Accounting

FRONT OFFICE
ACCOUNTING
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rpranith.reddy10@gmail.com

•A front office accounting system is an
essential process designed to monitor and
chart the financial transactions of guests and
non-guest at the hotel during each stage of
the guest cycle.
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An effective guest accounting system includes
tasks performed during each stage of the guest
cycle:
pre-arrival stage
Arrives
Occupancy
Checkout
After guest check out
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Create and maintain an accurate accounting file for
each guest or non-guest account
 Track financial transactions throughout the guest
cycle
Ensure internal control over cash and non-cash
transaction
Obtain settlement for all goods and services provided

ACCOUNT
 An account is a form on which financial data are accumulated and summarized.
 In its simplest written form, an account resembles the letter T:
Account Name
Charge Payment
6rpranith.reddy10@gmail.com
In accounting terminology, the left side of an account is called the debit
side and the right side is called the credit side.

For a front office account, charges are increases in
the account balance and are entered on the left side
of the T, while payments are decreases in the account
balance and are entered on the right side of the T.
Description of
account
Charge Payment Balance

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Front Office Accounting
Cycle
Settlement of
Accounts
Maintenance of Accounts
Creation of
Accounts
At the time of
reservation, if the
guest makes
advance
payment.
After the
reservation and
before the guest
arrival
At the time of registration, when the room is
allotted and an advance payment is received.
Keeping track of and recording
all financial transactions
during the stay of guest. It
includes all charges purchases
Preparing
and
presenting
the final
bill, and
collecting
the
payment
from the
guestrpranith.reddy10@gmail.com

Basic front office accounting formula
Net Outstanding Balance= Previous Balance +
Debit-Credit
NOB= PB+4700-2000
Where debit increases the outstanding balance
and credit decreases it.
rpranith.reddy10@gmail.com 10rpranith.reddy10@gmail.com

A journal form is typically used for front
office accounting documents. In a non-
automated or semi- automated
recordkeeping system.
Guest Accounts
Non-Guest Accounts

FOLIOS
Front office transactions are typically
charted on account statements called
folios.
The process of recording transactions on
a folio is called Posting.

Types of folios
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Hotel Front Office Accounts
Master Folio
Non-Guest Folio/Semi-
Permanent Folio
Split Folio/Incidental FolioEmployee Folio
Guest Folio

VOUCHERS
Cash Receipt Voucher
Petty Cash Voucher
Paid-out Voucher (VPO)
Charge Voucher
Miscellaneous Charge Order
(MCO)Commission Voucher
Allowance Voucher
Transfer voucher
A Voucher details a transaction to be posted to a front
office account
rpranith.reddy10@gmail.com 16

A Written document, that s
produced by a company, each
time it receives money for
goods, or services.

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Miscellaneous Voucher (MCO)

LEDGERS
A Ledger is a summary grouping of accounts.
Collection of front office account folios
An Accounts Receivable represents money owed to the
hotel.
Accounts Receivable :
Guest Ledger (for guest receivables)
City Ledger (for Non-Guest receivables)

GUEST
LEDGERRefers to the set of guest accounts that correspond to
registered hotel guests
Guests who make appropriate credit arrangements at
registration may be extended privileges to charge
purchases to their individual account folios during their
stay.
Guest ledger may be called the transient ledger, front
office ledger, or rooms ledger.
Deposits received for future reservations are usually
posted to the advance deposit ledger, which is part of the
guest ledger.

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Guest Orders
Food
Food Server
Check Presented
Guest Charges to Room Account
Coffee Shop Records, Amount of Charge (Credits Food Sales) &
Sends Charge Voucher to Front Office
Guests Net Outstanding Balance on Folio Increases
Guest Ledger Total, Net Outstanding Balance Increases
Desk Agent Posts Charges to Guest Folio Debiting Accounts Receivable
Restaurant Bill
Charged to a
Room Account

CITY LEDGER
Also called the non-guest ledger, is the collection of
non-guest accounts.
If a guest account is not settled in full by cash
payment at check-out, the guest's folio balance is
transferred from the guest ledger in the front office
to the city ledger in the accounting division for
collection.
 The city ledger can contain credit card payment
accounts, direct billing accounts, and accounts of
past guest due for collection by the hotel.

 In a horizontal tabular ledger, all the credit expenses of the guest are recorded in one
horizontal row, and at the end of the row, the guests’ credit or debit balance is shown.

 The vertical row of the table contains the room numbers. At the end of vertical column, the
daily sales balance can be seen. A vertical tabular ledger is a variation of the horizontal
tabular ledger. It is also called visitors tabular ledger.

Semi-Automated Front Office Systems
Handwritten and machine-produced forms
National reservation network
Pre-registration activities
Density board blocked reserved rooms
Registration cards -preprinted and multiple copies
Room rack -housekeeping status of each room
Vouchers received from point-of-sale areas
Posting machines record charges to guest folios
Night audit cross-checks folio charges to vouchers and
verifies settlement

Fully Automated Systems
Equipped with a software package (PMS)
Online credit authorization terminals
Electronics guest folios
Electronically posted guest accounts
Process continuous trial balance
Automatically produce bills
Create guest history records

Check-Out: Manual System
Here, the challenge is to ensure that all
charges, from all revenue departments,
reaches FO before guest leaves the hotel.
Timely communication, prompt response and
accurate up-dating of necessary documents is
the key to an efficient check-out process.

Distinguish between Voucher & Folio
Voucher
• It gives details of a single
transaction to be posted at
the Front Office. For E.g. A
florist or a gift shop might not
have provision of posting a
particular transaction into a
registered guest account. They
can send the voucher to notify
the FO of guest charge
privileges that need posting
Folio
• Refers to the statement of
all transactions (debits &
credits) affecting the
balance of a single
account. This may include
all non guest or guest
accounts.

Voucher
• It gives all the information about
one transaction documented at
the source of transaction (POS).
• The voucher accounts for a single
posting.
• Created at POS
• Types of Vouchers are cash
vouchers, charge vouchers,
transfer vouchers, allowance
vouchers & paid-out vouchers.
Folio
• This gives details of all the
transactions under a particular
account; contains all transactions
that increase or decrease the
balance.
• Whereas a folio lists out all the
postings in an account.
• Whereas a folio lists out all the
postings in an account.
• Some of the types of Folios are
Guest folios, Master folios &
Incidental folios, Non-guest or
Semi Permanent Folios, Employee
Folios

Guest Ledger
• Is the set of guest accounts
for registered guests or
guests who have sent
advance deposits.
• Corresponds to registered
guests or guests reserved
for future dates.
• Records all financial
transactions of an in-house
guest.
City Ledger
• Refers to the set of non guest
accounts. For e.g., if a guest
account is not settled in full on
check out, the balance is
transferred to the back office
accounting division for collection.
• Contains Credit Card payment
accounts, Company accounts,
direct billing accounts, outstanding
accounts of guests stayed earlier
and are due for collection.

Guest Ledger
• Also referred to as transient
ledger, front office ledger or
rooms ledger.
• Maintained at front office
City Ledger
• It is also called Non-guest
ledger.
• Maintained by accounting
division (back office accounts)

Front Office Accounting
Cycle
Settlement of
Accounts
Maintenance of Accounts
Creation of
Accounts
At the time of
reservation, if the
guest makes
advance
payment.
After the
reservation and
before the guest
arrival
At the time of registration, when the room is
allotted and an advance payment is received.
Keeping track of and recording
all financial transactions
during the stay of guest. It
includes all charges purchases
Preparing
and
presenting
the final
bill, and
collecting
the
payment
from the
guest 34rpranith.reddy10@gmail.com

• Debit Entries-.
• Credit Entries-
• Incidental Folio-
• Allowance Voucher-
• Floor Limit-
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Bar, Restaurant, Room Charge
PIA, Allowance, Final Payment
Split Folio
Set by the Bank
Compensation, Wrong
Posting, Airline/Tour Operator

CREATION OF ACCOUNTS
A guest Account is created when the first
financial transaction between the hotel and a
guest takes place.
At the time of guest reservation (PIA)
A guest folio is created on the day of the hotel
receives a payment from the guest and the
transactions are recorded in the order of their
occurrence.

The hotel sets a credit limit,for each
guest, which is the maximum
amount of credit that the hotel will
extend to the guest.

RECORDKEEPING SYSTEMS
The formats of guest and non-guest account folios may be
different, depending upon the front office recordkeeping
system.
Non-Automated. Guest folios in a manual system contain a
series of columns for listing individual debit (charge) and
credit (payment) entries accumulated during occupancy.
(VTL & HTL)
At the end of the business day, each column is totaled and
the ending balance is carried forward as the opening folio
balance of the following day.

SEMI-AUTOMATED
Guest transactions are printed sequentially on a
machine-posted folio.
The information recorded for each transaction includes
the date, department or reference number, amount of the
transaction, and new balance of the account.
The folio's outstanding balance is the amount the guest
owes the hotel, or the amount the hotel owes the guest in
the event of a credit balance at settlement.

FULLY AUTOMATED
Point-of-sale transactions may be
automatically posted to an electronic folio.
When a printed copy of a folio is needed, debits
(charges) and credits (payments) may appear
in a single column with payments
distinguished by a minus sign.

CHARGE PRIVILEGES
To establish an in-house line of credit, a guest
may be required to present an acceptable
credit card or a direct billing authorization at
the time of registration.
 A recent innovation for fully automated hotels
allows credit to be established at the time the
reservation is made.

This is usually done by obtaining the number
and expiration date of the guest's credit card
and electronically transmitting this information
to the credit card company with a request for an
amount guarantee.
These transactions are communicated manually
by vouchers or electronically from remote points
of sale locations to the front desk for proper
account posting.

Guests who pay cash for accommodations at
registration are typically not extended charge
purchase privileges. These guests are typically
called PIA guests.
In a fully automated front office accounting
system, PIA accounts are typically set to a no-
post status.
In non-automated and semi-automated
properties, a PIA list is manually distributed to
all revenue centers. While this list has the same
effect as the computer no-post status

Credit Monitoring
• Monitoring the guest and non-guest accounts to ensure they remain
within acceptable credit limits.
• Line of credit is set for guests who establish charge privileges during the
reservations or registration process.
• Guests who present an acceptable credit card at registration may be
extended a line of credit equal to the floor limit authorized by the
issuing credit card company.
• Internal credit restrictions are called house limits.

Front office management may need to be notified when a
front office account approaches its credit limit. Such accounts
are called high risk or high balance accounts.

NOTE TO BE SENT TO GUEST IN
CASE HIS CREDIT AMOUNT
EXCEEDS CREDIT LIMIT
Dear Sir/Madam,
We take this take this opportunity to bring to your kind notice that your bill amount
as on today is Rs……….. which has exceeded your credit limit of Rs………………It is
requested that you make kindly make an on account payment towards your bill
Thanking you and assuring you of your best services at all times
Yours sincerely,
Accounts Officer

TRACKING TRANSACTIONS
Charge purchase transactions must be correctly
documented in order for the front office to properly
maintain accounts.
Front office staff rely on accounting vouchers to
provide a reliable set of documentation.
A major concern of the front office accounting process
involves the communication of transactional
information from remote points of sale to the front
office.

Cash payment
Charge purchase
Account correction
Account allowance
Account transfer
Cash advance

Internal control in the front office
involves:
Tracking transaction documentation
Verifying account entries and balances
Identifying vulnerabilities in the
accounting system

CASH BANK
A second set of front office accounting control
procedures involves the use of front office
cashier banks.
A cash bank is an amount of cash assigned to a
cashier so that he or she can handle the
various transactions that occur during a
particular work-shift.

Charge purchase transactions must be correctly
documented in order for the front office to properly
maintain accounts. Front office staff rely on
accounting vouchers to provide a reliable set of
documentation.
A major concern of the front office accounting process
involves the communication of transactional
information from remote points of sale to the front
office.
The night audit is intended to verify transactional
data to ensure that the front office collections
accounts receivable balances for all goods and
services the hotel provides.rpranith.reddy10@gmail.com 52

Cash payments made at the front desk to reduce a guest's net
outstanding balance are posted as credits to the guest or non-
guest account, thereby decreasing the balance of the account.
 The front office may use a cash voucher to support such
transactions.
Front office account balances are also affected by cash
payments made to settle an account or to prepay
accommodations.
Guests who register and pay cash in advance for their stay
may be given a copy of their folio before their stay as proof of
payment.

For example, a cash payment for a guest's
lunch in the hotel's restaurant would not
appear on the guest's folio.
 In addition, some hotels sell items such as
newspapers at the front desk, when guests pay
for these items with cash there simply is no
charge to post to any account.

Charge purchases represent deferred payment transactions.
 In a deferred payment transaction, the guest (buyer)
receives goods and services from the hotel (seller), but does
pay for them at the time they are provided.
A charge purchase transaction (debit) increases the
outstanding balance of a folio account.
If the transaction occurs somewhere other than at the front
desk, it must be communicated to the front desk for proper
folio posting.
 In non-automated and semi-automated properties, this
communication is normally accomplished by means of a
charge voucher, also referred to as an account receivable
voucher.

An account correction transaction resolves
a posting error on a folio.
By definition account correction is made on
the same day the error is made, before the
close of business that is, before the night
audit.
A correction voucher is used to document
an account correction transaction.

Account allowances involve two types of transactions. One
type of account allowance is a decrease in a folio balance
for such purposes as compensation for poor service or
rebates for coupon discounts.
 Another type of account allowance corrects a posting error
detected after the close of business (that is, after the night
audit).
Such an error will he separately entered into the
accounting records of the appropriate revenue centers,
thereby also correcting their accounting records.

Account transfers involve two different
accounts and tend to have offsetting impacts on
subsequent account balances.
For 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.

The difference between a cash advance and other types of
transactions is that cash advances reflects cash flow of the
hotel, either directly to, or on behalf of, a guest.
Cash advance transaction are considered debt transactions
since they increase folio’s outstanding balance.
Cash advances are supported by cash advance vouchers
disbursed by the front office on behalf of a guest (and charged to
the guest's account as a cash advance) is typically called a paid-
out. In some front office operations, a paid-out voucher is used
instead of a cash advance voucher.

FUNCTION of FOAS of INTERNAL
CONTROL
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Tracking transaction documents
Verifying accounts entries and balance
Identifying vulnerabilities/ weaknesses in an accounting
system
 Auditing is the process of verifying front office accounting records
for accuracy and completeness

Each transaction produces paperwork, which documents the
nature and amount of the activity.
For example, the transaction that occurs when a guest
charges a meal to his or her account folio may be supported
by the restaurant’s guest check, cash register tape, and
charge purchase voucher.
The voucher is prepared and sent to the front office as
notification of the transaction.
A front desk agent, in turn, retrieves the guest’s folio, posts
the charge purchase transaction, and files the folio and
voucher. Later that day, the night auditor ensures that all
vouchers have been properly posted to accounts discrepancies
may be easier to resolve if complete documentation is readily
available to substantiate account entries.

Front office cash sheet: the front office is responsible for a
variety of cash transaction, which may affect both guest and
non-guest accounts. Proper cash handling procedures and
controls must be established, implemented, and enforced.
Most non-automated or semi-automated operations require
front office cashiers to complete a front office cash sheet that
lists each receipt.
The end of a cashier shift with the documented transactions
which occurred during the shift.
A front office cash sheet provides separate columns to record
transactions affecting guest account, non-guest accounts.

Front office policy may also require the completion of
a cash voucher as support documentation for cash
transactions affecting front office accounts.
The most common entry on front office cash sheet is
the money collected from the departing guests during
check-out.
When guests pay on their accounts, the cashier
typically records the amount paid, the room number,
and the folio number on the front office cash sheet.

 A second set of front office accounting control procedures involves the use of front
office cashier banks.
 A cash bank is an amount of cash assigned to a cashier so that he or she can
handle the various transactions that occur during a particular work-shift.
 At the end of a work-shift, each front office cashier is solely responsible for
depositing all cash, checks, and other negotiable instruments received during the
work-shift.

At the end of the shift, the cashier typically separates
out the amount of the initial bank, and then places
the remaining cash, checks, and other negotiable
items (such as paid-out vouchers) in a specially
designed cash voucher or front office cash envelope.
 The cashier normally itemizes and records the
contents of the front office cash envelope on the
outside of the envelope before dropping it into the
front office vault.
Monetary differences between the money placed in the
front office cash envelope and the cashier's net cash
receipts should be noted on the envelope as overages,
shortages, or due backs.

An overage occurs when, after the initial bank is
removed, the total of the cash checks, negotiables, and
paid-outs in the cash drawer is greater than the net cash
receipts.
 OVERAGES – When the total of cash and checks in a cash drawer is greater than the
initial cash bank + net cash receipts
 A shortage occurs when the total of the contents of the
drawer is less than net cash receipts.
SHORTAGES – When the total of cash and checks in
a cash drawer is less than the initial cash bank + net
cash receipts.

Neither an overage nor a shortage is typically considered "good"
by front office management when evaluating the job
performance of front office cashiers.
overages and shortages are determined by comparing the cash
totals of the cashier's postings against the actual cash, checks,
and negotiables in the cashier's bank
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 unusual in the front office. A special kind of due
back may occur when a cashier accepts many checks and large
bills during a shift.

At the end of the shift, the cashier typically separates out the
amount of the initial bank, and then places the remaining cash,
checks, and other negotiable items (such as paid-out vouchers)
in a specially designed cash voucher or front office cash
envelope.
The cashier normally itemizes and records the contents of the
front office cash envelope on the outside of the envelope
before dropping it into the front office vault.
From an internal control perspective, at least one other
employee should witness this cash banking procedure and both
employees should sign a log attesting the drop was actually
done and stating the time of the drop.

Monetary differences between the money placed in the
front office cash envelope and the cashier's net cash
receipts should be noted on the envelope as overages,
shortages, or due backs.
 Net cash receipts (difference between what the cashier
took in and what was paid out) are the amount of cash,
checks, and other negotiable items in the cashier's
drawer, minus the amount of the initial cash bank, plus
the paid-outs.

 For example, assume the front office cashier began the work-shift with a
$175 cash-bank.
 During the shift, the cashier made paid-outs totaling $49. At the end of
the work-shift, the amount of cash, checks, and other negotiable items in
the cash drawer totals $952.
 To determine the amount of net cash receipts, the front office cashier
would first add together the value of the cash, checks, and other
negotiable items in the cash drawer ($952).
 The cashier would next subtract the value of the initial cash bank ($175).
By adding the amount of paid-outs ($49), the front office cashier will
arrive at a net cash receipt position ($826)
$952-$175+$49 = $826

An overage occurs when, after the initial bank is removed, the
total of the cash checks, negotiables, and paid-outs in the cash
drawer is greater than the net cash receipts.
A shortage occurs when the total of the contents of the drawer
is less than net cash receipts.
A due back/due bank 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
unusual in the front office.

The terms over & short means what is in more and what is in less
from what it should be at the close of the day.
In other words, it is the difference between what the cashier should
have in the cash drawer and what is actually there.
It is a comparison of mathematical computation and physical count of
the money.
Over means extra amount deposited in the vault and short means less
amount deposited in the hotel vault by departmental cashier.
The Overages is caused when the amount of cash and cheque in
drawer is more then the net cash receipt and shortages are caused when
the amount of cash and cheques in drawer is less than net cash receipt.

A number of front office audit controls ensure that front
office staff properly handle cash, guest accounts, and non-
guest accounts.
Publicly held lodging companies are required to have both
their front and back office accounting records audited
yearly by independent certified public accountants.
The checklist includes items related to standard front
office procedures designed to protect the integrity of front
office operations.

Turn In
Each cashier begins the shift of each day with an exact
amount of bank and everything in excess of the bank is
turned into the accounting officer at the close day.
Turn in involves every type of non-negotiable money
including cheques, traveler cheques, foreign cheques, foreign
exchanges, cash in poor conditions and vouchers for house
expenses.
 Since the cashier always retains the exact bank, the turn-in
includes overages or allows for the shortages

SETTLEMENT OF ACCOUNTS
The collection of payment for outstanding account
balances is called account settlement. Settlement
involves bringing an account balance to zero.
An account can be brought to a zero balance as a
result of a cash payment in full or a transfer to an
approved direct billing or credit card account.
Transfers to approved deferred payment plans
move outstanding guest folio balances from the
guest ledger to the city ledger.

Opening balance plus, debit entries,
minus credit entries= Outstanding
balance.
If debit side is more, pays guest
pays.
If credit is more, the hotel refunds to
the guest.

Non-guest folio balances may be initially billed on the day the transaction
occurred. Settlement may be due in 15 to 30 days, depending on front office
policy.
For example, consider the case of a guest who makes a guaranteed reservation
but does not show up, often called a no-show guest. The account cannot be
settled at check-out, since the guest never registered. Instead, the front office
sends a statement to the guest for the amount of the guarantee, hoping to
collect the account balance in 15 to 30 days.
If the guarantee was made by credit card, the hotel may have an agreement
with the credit card company to bill it for the no-show guest.
The amount of the guarantee is then transferred to the credit card part of
accounts receivable ledger for collection.

THANK YOU
80

Front Office Accounting

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