Accounting for Management in Hospitality

Industries
LO:01

• To appraise the importance of financial statements along with the key performance indicators for hospitality
industry
Contents
1.1 Introduction to Accounting and Management in Hospitality Industries
1.2 Introduction to financial statements in hospitality industries:
1.2.1 Understanding the purpose of income statement and balance sheet
1.2.2 Value of uniform system of accounts
1.2.3 Differentiate between direct, indirect and undistributed costs
1.2.4 Calculate ending inventory

1.3 Ratio Analysis

1.3.1 Analysis of credit card receivables
1.3.2 Explain each of the solvency ratios
1.3.3 Describe each of the profitability ratios.
1.3.4 Explain each of the activity ratios
1.3.5 Importance of inventory turnover ratios.
1.3.6 Five important food and beverage operating ratios
1.3.7 List and describe at least five rooms operating ratios.
1.3.8 Explain the meaning of gross margin.
1.1 Introduction to Accounting and
Management in Hospitality Industries
Accounting refers to systematic recording, classifying and summarizing of financial
transactions and interpreting the results thereof. Thus, accounting encompasses
financial reporting.

 Accounting starts with recording and ends with presentation of financial information in a
manner that facilitates informed judgments and decisions by users.

 Accounting in hospitality industry is essential

(a) to keep track of the transactions.

(b) prevent mismanagement and inefficient tracking.

For example : a hotel- accommodating guests, paying the salaries of the hotel
employees, reporting the total sales, recording transactions, analyzing the profits etc.
require a specialized accounting management.
Hospitality accounting includes the
following:
• Preparing a precise collection of month end accounts
• Budget preparation
• Business planning
• Creating financial statements and balance sheets
• Payroll
1.2 Introduction to financial statements in hospitality industries:

• Financial Statements: Objective

 To provide information about the financial position, performance
and cash flows of an enterprise that is useful to a wide range of users
in making economic decisions.

 Financial statements do not necessarily provide non-financial

information.
1.2 Introduction to financial statements in hospitality industries:

• Corporate Financial Statements

• What are the corporate financial statements?

 Balance Sheet

Shows the financial position (position of assets, liabilities and equity) as on the
reporting date.

 Income Statement

Shows the financial results (profit or loss) for an accounting period.

1.2.1 Understanding the purpose of income statement and balance
sheet

• financial health, giving insight

into its performance,
operations, and cash flow.
• Financial statements are
essential since they provide
information about a
company's revenue, expenses,
profitability, and debt.
Balance Sheet
• The balance sheet shows a company's assets
(what they own), liabilities (what they owe),
and stockholders' equity (or ownership) at a
given moment.
Example of a Balance Sheet 
• ExxonMobil Corporation's (XOM) balance
sheet for fiscal-year 2021, reported as of Dec.
31, 2021.
Total assets were $338.9 billion.
Total liabilities were $163.2 billion.
Total equity was $175.7 billion.
Total liabilities and equity were $338.9 billion,
which equals the total assets for the period.
 Income Statement
• Reports the revenue generated from sales, the
operating expenses involved in creating that
revenue as well as other costs, such as taxes and
interest expense on any debt on the balance
sheet.
• Net income is revenue minus all of the costs of
doing business
• Revenue : defined as an inflow of assets received
in exchange for goods or services provided. Eg.
renting guest rooms, while in a restaurant,
revenue is from the sale of food and beverages,
catering, entertainment, casinos, space rentals,
vending machines, and gift shop operations,
located on or immediately adjacent to the
property
• Expenses are defined as an outflow of assets
consumed to generate revenue. The accrual
method requires that expenses be recorded
when incurred, not necessarily when payment
is made.
 1.2.2 Value of uniform system of accounts
• A situation in which a number of
hotels/restaurants may use the same
accounting (costing and sales)
principal in such a way as to
produce sales, valuable
conclusions can be drawn and one
hotel can be compared to others.
information collected on a
regional or national basis from
similar organizations within the
hospitality industry.
organization comparison of its
results with the averages.

• classifying, organizing, and

presenting financial information
Analysis of the causes and taking
so that uniformity prevailed and corrective actions
comparison of financial data
among hotels is possible.
1.2.3 Differentiate between direct, indirect and undistributed costs

• Departmental income statements report operating costs that are classified as

direct costs, that are directly traceable to the department.

• Indirect costs are costs that are not easily traceable to a specific department, and
are usually undistributed costs.

• Undistributed costs are normally incurred to support the overall facility and will
normally appear on a summary income statement. All costs shown in a generic
income statement will be shown as cost of sales, and named expenses.
1.2.4 Calculate ending inventory

Methods of Inventory Valuation

1.2.4.1 First-in, first-out :
Commonly referred to as FIFO, the first-in, first-out
inventory control procedure works as the name implies—
the first items received are assumed to be the first items
sold. Simply put, the oldest items are assumed to be sold
first, leaving the newest items in inventory.
1.2.4.2 Last-in, first-
out(LIFO)
• Commonly referred to as LIFO works
as the name implies—the newest or
last items received are assumed to be
the first items sold, leaving the oldest
items in inventory.
• The newest items are assumed to be
sold first. LIFO uses the same concept
as FIFO.
• The value of ending inventory, cost of
sales, and purchases can be verified as
follows:
1.3 Ratio Analysis
1.3.1 Analysis of credit card receivables
1.3.2 Explain each of the solvency ratios
1.3.3 Describe each of the profitability ratios.
1.3.4 Explain each of the activity ratios
1.3.5 Importance of inventory turnover ratios.
1.3.6 Five important food and beverage operating ratios
1.3.7 List and describe at least five rooms
operating ratios.
1.3.8 Explain the meaning of gross margin.
References:
• https://www.investopedia.com/ask/answers/032615/why-do-shareho
lders-need-financial
• https://www.investopedia.com/terms/f/financial-statements.asp
• https://hmhub.in/uniform-system-accounts-hotels/