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The Major Functions of Front Office Accounting System Are As Under
The Major Functions of Front Office Accounting System Are As Under
The Major Functions of Front Office Accounting System Are As Under
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The status of guests, whose accounts are not settled by them (in case of bills to
company), changes from resident to non-resident guests when they leave the hotel.
The front desk cashier transfers the balance to the city ledger and the payment is
collected by the accounts department.
When advance payment has been received for a guaranteed reservation and it is
subsequently a no-show, the account is normally recorded in the city sales ledger
Folios
A folio is a statement of all the transactions that take place between a hotel and a
guest. A folios is a statement of all transactions (debit & credit) affecting the balance
of a single account. When an account created, a folio is assigned with a starting
balance zero. All transactions, which increase (debits) or decrease (credits) the
balance of the account is recorded on the folio. At settlement a guest folio should be
returned to a zero balance by cash payment or by transfer to an approved credit card
or direct billing account. The process of recording transactions on to a folio is called
posting. There are basically four types of folios used in front office accounting:
Guest folios: To record transactions made by an individual or independent guest
with the hotel.
Master folios: Accounts assigned to more than one person or guestroom: usually
reserved for group accounts.
Non-guest folios: Also known as semi-permanent folio. Accounts assigned to
non-guest business or agencies with hotel charge purchase privileges.
Employee folios: Accounts assigned to employees with charge purchase
privileges.
Split Folios – Accounts assigned to a guest on his/her request to split his/her
charges and payments between two personal folios – one to record expenses to be
paid by the sponsoring business company and the other to record personal
expenses to be paid by the guest. In this case two folios are created for the same
guest.
Every folio should have a unique serial number. Folio serial numbers are needed for
many reasons. First, they serve as identification numbers that help ensure that all
folios are accounted for during an audit of front office transactions. Second folio
numbers may used to index information in automated systems. Automated systems
frequently create folio numbers when reservations are made. Finally folio numbers
can provide a chain of documentation.
Vouchers
A voucher details a single transaction to be posted to a front office account. This
document lists detailed transaction information gathered at the source of the
transaction. The voucher is then sent to the front office for posting onto the guest
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Guest Ledger: A guest ledger contains the details of all the financial transactions
between a resident guest and the hotel, including charge purchases and the payments
received from the guest. It has two parts—debit and credit. In a manual system, the
financial transactions are recorded in a tabular ledger, or tab ledger, which is of two
types:
Horizontal tabular ledger
Vertical tabular ledger
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. The rows
depict the room numbers, and in the columns, the details of the guests and their credit
expenses as well as payments are recorded. At the end of every column, one can
find the account balance of individual guests staying in a particular room. It is a
loose sheet and is prepared on a daily basis by the front desk cashier.
City ledger: The city ledger also called the non-guest ledger is the collection of non-
guest accounts. A city ledger contains the collective accounts of all the non-resident
individuals/agencies to whom the hotel extends credit facility. It is also called non-
guest account.
City ledgers also contain the accounts of resident guests who have left the hotel
without settling their accounts, which would be settled at a later date by a third
party (may be a credit card company, an airline, a travel agency, or a corporate
house).
This account would be closed at the time of receiving the complete payment.
The account of skippers is also maintained in the city ledger for a specific period
(as per the hotel policy); at the expiry of this period the same is written off as bad
debt and the account is closed.
This ledger also includes bad cheque accounts (cheques that have bounced),
disputed bills account (bills that are in dispute), late charges accounts (bills that
could not be posted in the guest bill at the time of check-out), and retention
charges accounts (reservation was guaranteed but the same was cancelled or guest
did not show up).
Front Office Accounting Cycle
An important function of the front office accounting system is to maintain an
accurate and up-to-date record of all the financial transactions (credit and debit)
between the hotel and each guest, so that all the outstanding accounts are settled and
the hotel does not lose any revenue. The front office accounting cycle has three
distinct phases:
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1. Creation of accounts
2. Maintenance of accounts
3. Settlement of accounts
Creation of Accounts : A guest account is created when the first financial
transaction between the hotel and a guest takes place. It may happen at one of the
following stages:
At the time of reservation, if the guest pays an advance amount
At the time the hotel receives the advance payment for a booking after the
reservation has been made and before the arrival of the guest.
At the time of guest registration, when a room is allotted to the guest.
A guest folio is created on the day 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, known as floor limit, for each guest, which is the
maximum amount of credit that the hotel will extend to the guest.
Maintenance of Accounts: All the monetary transactions that take place between
the hotel and a guest are recorded in the guest folio in the order of their occurrence.
An entry in the guest folio may be either debit or credit.
The most common debit entries in a guest account include the following:
Room charges
Food and beverage charges (restaurant, bar, coffee shop, room service, etc.)
Telephone and fax charges
Health centre, business centre, fitness centre charges
Laundry charges
Postage charges
Transportation charges
Visitors paid-out
Credit entries in a guest account may include the following:
Pre-payment, in part or in full (at the time of reservation or between reservation
and arrival).
Part payment during the stay.
Allowances given to the guest.
Adjustments made in case of any error in posting in the guest folio.
Final payment for the settlement of accounts at the time of check-out.
Settlement of Accounts: This is the final and concluding phase of the front office
accounting cycle. The settlement of account means zeroing the balance in a guest
folio. The formula for calculating the outstanding balance is:
Opening balance + Debit entries – Credit entries = Outstanding amount
At the time of departure, the final bill of the guest is prepared and settled in such a
way that the outstanding balance is brought to zero. The settlement of the guest
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account may be by cash or credit. In case of credit settlement, the account balance
is transferred to the city ledger and the responsibility of collecting the balance is
transferred to the accounts department.
Tracking Transactions
Charge purchase transactions must be correctly documented in order for the front
office to properly maintain accounts. A major concern of the front office accounting
process involves the communication of transactional information from remote point-
of-sale to the front office.
A transaction initiates activity within the front office accounting system. The front
office accounting system can be described as a transactional accounting system.
Proper posting procedures depend on the nature of the transaction and its monetary
value. A transaction can be classified as:
Cash payment
Charge purchase
Account correction
Account allowance
Account transfer
Cash advance
Each type of transactions will have a different effect on the front office accounting
system. Each may be communicated to the front office through the use of a different
type of voucher, which will help simplify eventual auditing procedures.
Cash Payments: 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. When cash is paid for goods or services at a location other
than the front desk, no entry will appear on the account folio. The account for this
transaction is created, increased, settled and closed at the point-of-sale, thereby
eliminating the need for front office documentation or posting.
Charge Purchase: Charge purchase represent deferred payment transactions. In a
deferred payment transaction the guest receives goods and services from the hotel,
but does not pay for them at the time they are provided. A charge purchase
transaction (Debit) increases the outstanding balance of a folio. In non-automated
and semi-automated properties the transactions in revenue centers are communicated
to the front office for posting by means of account receivable vouchers.
Account Correction: An account correction transaction resolves a posting error on
a folio. By definition an account correction is made on the same day the error is
made, before the close of business. An account correction can either increase or
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Fill in the details in the paid-out column of the front office cashier’s report.
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
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.
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.
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.
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.
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Accounts approaching their floor or house limit are called high-risk or high-
balance accounts and must be carefully monitored by management.
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.
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. 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.
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.
Shortages: A shortage occurs when the total of the contents of the cash 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.
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