FRONT OFFICE ACCOUNTING

I- Front Office Accounting System: The front office accounting system is responsible for: a) Creating and maintaining an accurate accounting record for each guest or non-guest in the hotel b) Tracking all financial transactions throughout the guest cycle c) nsuring internal control o!er cash and non-cash transactions d) "ecording settlement for all goods # ser!ices pro!ided The front office accounting system shall be customi$ed and tailored to track each hotel%s needs& Therefore' no t(o hotels ha!e e)actly the same front office accounting systems& II- *eneral Concepts of Front Office Accounting: +elo( is a brief description of some accounting terminologies used fre,uently in the front office department: -- Accounts: An Account is a form on (hich financial data are accumulated' summari$ed and brought to its ending balance& .oreo!er' all accounts shall ha!e t(o entries referred to as /ebit 0dr) 0or charges) !ersus Credit 0cr) 0or payments)& The most (idely used representation of accounts is the T-Account' (hich summari$es debit entries on the left-hand side and credit entries on the right-hand side& 1otels operating under the manual system get use of 2ournal forms to account for different front office accounting transactions& As far as front office accounting is concerned' there are t(o ma2or types of accounts (idely used: a) *uest accounts describe all charges and payments of guests (ho are already registered at the hotel& b) 3on-guest 0house or city) accounts: describe all charges and payments of non-guests& To illustrate' a potential guest sending a certain deposit to guarantee a reser!ation is a non-guest& .oreo!er' charges and payments of guests (ho checkout (ith any method of payment other than cash' shall be opened a non-guest account& 4astly' !isitors and employees (ith charge pri!ileges shall be opened non-guest accounts& 5- Folios: A folio is a statement of all transactions 0i&e& debits # credits) affecting the balance of a single account& At Checkout' any guest folio should be balanced to 6 through full cash payment' credit card transfer' personal check transfer' special program transfer' and direct billing transfer7 The correct (ay of maintaining folios starts (ith proper posting' (hich is the process of recording transactions on a folio 0i&e& proper folio' proper location and proper amount) 8nder the manual' semi automated and fully automated systems' folios are called hand(ritten folios' machine-posted folios' and computer-based electronic folios respecti!ely&

.oreo!er' all folios shall ha!e a uni,ue serial number for internal control and storing purposes& In the front office department' there are four common types of folios used: a) *uest folios: accounts assigned to indi!idual persons or guestrooms b) .aster Folios: accounts assigned to more than one person or guest room9 usually reser!ed for guest groups c) 3on-*uest 0or semi-permanent) folios: accounts assigned to non-guest businesses or agencies (ith hotel charge purchase pri!ileges d) mployee Folios: accounts assigned to employees (ith charge purchase pri!ileges Apart from the abo!e mentioned common folios' front office department get use of some other types of folios such as A-type' +-type' C-type' /-type' and -type folios& :- ;ouchers: ;ouchers depict the details of the transaction information gathered at the source of transaction and is' hence' a supporting documents used only for internal control purposes& +elo( are some of the commonly used !ouchers in the hospitality industry: a) Cash !ouchers b) Credit card !ouchers c) Charge !ouchers d) Transfer !ouchers e) <aid-out !ouchers f) Correction !ouchers g) Allo(ance !ouchers =- <oints of sale >i&e& <OS?: A point of sale is the location at (hich goods or ser!ices are purchased9 sometimes called a re!enue center& .oreo!er' due to technology breakthrough' some non-traditional point of sales emerged such as in-room mo!ie # in-room !ending ser!ice systems& Since charges are usually incurred at remote points of sale' and guest and non-guest folios are maintained at the front office department' posting of different guest and nonguest charges shall be performed& An electronic transfer ensures this' under the fully automated system& 8nder manual and semi automated systems posting shall be done by a physical submission of different !ouchers to the front office department& @hen posting charges' the follo(ing items shall be considered: a) Amount of the charge b) 3ame of the point of sales outlet c) "oom number # name of the guest d) +rief description of the charge e) *uest signature # employee identification A- 4edgers: The front office ledger is the collection of front office account folios' (hich usually include guest ledgers 0i&e& charges and payments of all guests staying at the hotel)& At any moment in time' the account recei!able includes the addition of guest ledger and non-guest ledger 0or city ledger) (hich refers to charges and payments of all non-guests&

III- Creation and .aintenance of *uest Accounts: All guest folios shall be created during the pre-arri!al or arri!al stage of the guest cycle& .oreo!er' folios might be either placed in front desk folio tray >i&e& posting tray' folio (ell' or bucket? or stored as an electronic guest folios in fully automated systems& As far as (alk-ins are concerned' all their guest folios are created at the arri!al stageB -- "ecord keeping systems: a) 3on- automated systems: nsured through a series of columns listing indi!idual debit and credit entries accumulated during the occupancy stage after (hich and establishment of an ending outstanding balance is needed& b) Semi-automated systems: 8nder this !ery system' all guest transactions should be printed se,uentially on a machine-posted folio& 4ater' the front office clerk needs to come up (ith the folio outstanding balance& It is e)tremely important here to mention that' under this !ery system' each account%s pre!ious balance shall be re-entered each time a transaction is posted to the folio& c) Fully-automated systems: All guest charges are automatically posted to an electronic folio 5- *uest charge pri!ileges: <otential guests (ho (ould like to ha!e guest charge pri!ileges shall present an imprint of an acceptable credit card or direct billing authori$ation at registration& Failing to do so' guests (ould ha!e to pay' in full' all their charges through cash' hence called <aid-inAd!ance ><IA? guests and ha!e' hence' ha!e no post status& :- Credit monitoring: In order to monitor and control charge pri!ileges' the front office clerk should check (hether the total net purchases are less than the minimum of floor 4imit 0i&e&: credit card companyCs limit) and house limit 0i&e& hotelCs limit)& At least' each day' lists of guests (ith high risk or high balance accounts shall be communicated to all point of sale outlets& This is !ital since' failing to do so' (ill let point of sales outlets continue gi!ing charge pri!ileges to a point that e!entually the credit card company refuses to pay the amount of money e)ceeding its limit& This (ill cause !ery serious financial losses to the hotel& =- Account maintenance: @hatsoe!er system hotels operate' maintenance of guest and non-guest accounts is ensured by the follo(ing formula: 3et outstanding balance D <re!ious balance E /ebits - Credits NOB D PB E DR - CR I;- Tracking Transactions: 8nder the manual and semi-automated systems' tracking transactions is ensured through an intensi!e use of !ouchers& On the other hand' 8nder fully automated systems'

tracking transactions is ensured through on-line electronic transfer of transactional information from remote points of sale to the front office main frame terminal& In accounting' a transaction is an e)change of goods and ser!ices for cash or a promise to pay& 8nder this !ery assumption' Fnothing happens until a transaction occursF& This means that front office clerks shall first of all ha!e a transaction' its supporting documents 0i&e& !ouchers' in!oices7) to be able later to debit or credit certain accountsB In hotels transactions might ha!e the form of: a) b) c) d) e) f) Cash payment Charge purchase Account correction Account allo(ance Current transfer Cash Ad!ance

-- Cash payment: In this !ery transaction' front office clerks shall post cash payment as a credit in the guest folio& .oreo!er' cash !ouchers shall be used as a transaction-supporting document& 5- Charge purchase: Charge purchases represent deferred payment transactions that increase the outstanding balance of a folio account& In this transaction type' front office clerks shall use charge !ouchers as a transaction-supporting document& :- Account correction: Account correction is used to resol!e a posting error in a folio detected at the day the error is made 0i&e& before the closing of the business day)& In this transaction' front office clerks shall use correction !ouchers as a transaction-supporting document& =- Account allo(ance: Account allo(ances occur because of t(o reasons: a) ither as compensation of poor ser!ice' or as rebates for coupon discounts& That (ay' guest outstanding balance decreases& b) As to correct a posting error detected after the closing of the business day& For both reasons' front office clerks shall prepare an allo(ance !oucher as a transaction supporting document& ;- Internal Control: In the hotel industry' the main purpose of internal control is to track transaction documentation' !erify account entries and account balances' and to identify !ulnerabilities in the accounting system& The key(ord to internal control is auditing' (hich is the process of !erifying front office accounting records for accuracy and completeness& +elo( are some forms that are of e)treme importance to internally control' one of the most !ital assets in the hotel 0i&e& cash):

-- Front office cash sheet: The front office cash sheet lists each cash receipt or disbursement in order to reconcile cash on hand at the end of a cashierCs shift (ith the documented transaction that occurred during the same shift& 5- Cash' house banks or petty cash: <etty cash is the amount of cash assigned to a cashier so that heGshe can handle the !arious transactions that occur in a particular (ork shift& At the beginning of each shift' all cashiers must sign their cash banks and at the end of the shift' shall deposit all cash' checks' and other negotiable instruments in the general cashierCs safe deposit bo)& .oreo!er' at the end of each shift' cashiers should (atch out for cash discrepancies 0i&e& any difference bet(een front office cash sheet and the actual amounts in their cash dra(ers)& Cash discrepancies might ha!e the form of cash o!erages' shortages' or due backs 4astly' cashiers might come up (ith the net cash receipt' (hich is: Amount of all cash' checks' and other negotiable instruments in cashier%s dra(er H amount of the initial cash bank E all paid outs :- Audit control: Along (ith the fact that hotels might employ internal control auditors' at least once in a year' 0especially for hotels traded in the stock market) to get use of e)ternal certified public accountants responsible for appro!ing hotelCs accounts& ;I- Settlement of Accounts: One of the responsibilities of front office clerks is to settle guest accounts' (hich means the e!entual collection of payment for outstanding account balances 0i&e&: bringing account balances to 6?& This is usually ensured either by full cash payment' transfer to an appro!ed credit card' personal check' special program' or direct billing account7