Hotel

Expense
Accounting
Hotel Expense Accounting
What are Accounts Expenses?
An expense in accounting is the money spent, or costs incurred, by a business in their effort to generate
revenues. Essentially, accounts expenses represent the cost of doing business; they are the sum of all
the activities that hopefully generate a profit.
An expense is defined in the following ways:
Office supplies use up the cash (asset)
Depreciation expense, which is a charge to reduce the book value of capital equipment (e.g., a machine
or a building) to reflect its usage over a period.
A prepaid expense, such as prepaid rent, is an asset that turns into a cash expense as the rent is used
up each month
Business Segmentation
Business Segmentation refers to the division of work into specialized areas of responsibility.
Various accounting reports reflect the efficiency and/or profitability of each specific area of
responsibility.

In business segmentation each function is divided into various reporting centers. In large hotel
may organize its business into the following financial reporting centers:

•Rooms Telecommunications Utility Costs

•Food Marketing Fixed Charges
•Beverage Human Resource
Responsibility Accounting
Expenses include the day to day cost of operating a business. For purpose of financial reporting,
expenses may be separated into four broad categories,

Cost of Sales Operating Expenses

Fixed Charges Income taxes

In broader Category expenses are further categorized in two types:

1. Direct Expenses

2. Indirect Expenses
Responsibility Accounting
Types of Expenses
Expenses affect all financial accounting statements but exert the most impact on the income statement. They
appear on the income statement under five major headings, as listed below:
1. Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is the cost of acquiring raw materials and turning them into finished products. It
does not include selling and administrative costs incurred by the whole company, nor interest expense or
losses on extraordinary items.
For manufacturing firms, COGS includes direct labor, direct materials, and manufacturing overhead.
For a service company, it is called a cost of services rather than COGS.
For a company that sells both goods and services, it is called cost of sales.
Examples of COGS include direct material, direct costs, and production overhead.
2. Operating Expenses – Selling/General and Admin

Operating expenses are related to selling goods and services and include sales salaries,
advertising, and shop rent.

General and administrative expenses include expenses incurred while running the core line of the
business and include executive salaries, R&D, travel and training, and IT expenses.

3. Financial Expenses

They are costs incurred from borrowing from lenders or creditors. They are expenses outside the
company’s core business. Examples include loan origination fees and interest on money
borrowed.
4. Extraordinary Expenses

Extraordinary expenses are costs incurred for large one-time events or transactions outside the
firm’s regular business activity. They include laying off employees, selling land, or disposal of a
significant asset.

5. Non-Operating Expenses

These are costs that cannot be linked back to operating revenues. Interest expense is the most
common non-operating expense. Interest is the cost of borrowing money. Loans from banks
usually require interest payments, but such payments don’t generate any operating income.
Hence, they are classified as non-operating expenses.
Bad Debts
A business that sells goods or services on credit to its customers will usually incurs bad debts
regardless of effective credit policies. A bad debt occurs when someone owes you money but you
are unable to collect it. The debt is worthless because you cannot collect what you are owed.

Consequences of Bad Debts

Customer Bankruptcy

Due to death

Fraud

Disagreement
Bad Debts
Method of Accounting

There are two methods of accounting for bad debts:

1. Direct write-off Method

2. Allowance Method.

Under the direct write-off method, bad debt losses are recorded when they occur. Under the
allowance method, an estimate of potential bad debts is made before a specific customer’s
account is uncollectable.