Accurate financial management, client pleasure, and operational efficiency are all made possible by front office accounting, which is a crucial function in the hospitality sector. The principles of hotel front office accounting, including account types, ledgers, folios, and vouchers, are thoroughly covered in this chapter. It also explores cash sheets, credit monitoring, record-keeping systems, and the ideas of house and floor boundaries for different hotel types.
1.1 Foundations of Hotel Front Office Accounting
1.1.1 Account Types
Accounts are financial documents used in hotel front office accounting that monitor financial transactions. Among the primary account kinds are:
Guest Account: Holds payments and charges for specific hotel visitors.
Non-Guest Account: Keeps records for organizations, including corporate clients or event planners, that are not actively staying at the hotel.
House Account: Tracks internal transactions, including employee meals, promotional expenses, or management costs.
1.1.2 Ledgers and Folios
Ledger:
A ledger is an exhaustive log of every financial transaction that takes place in the hotel. Two main categories of ledgers exist:
The front office ledger, sometimes referred to as the guest ledger, is a record of all current guest accounts, including hotel costs, expenses for food and drink, and other services.
Travel agencies, business clients, and postponed payments are examples of non-guest accounts for whom the City Ledger keeps track of receivables.
Folio:
An itemized record of a group's or guest's financial transactions at the hotel is called a folio. Among the several kinds of folios are:
o The Guest Folio contains a list of each guest's transactions.
o Master Folio: Gathers fees for events or groups.
o Non-Guest Folio: For outside customers utilizing hotel amenities.
o Employee Folio: For transactions involving employees.
1.1.3 Vouchers
Vouchers serve as documentary evidence of transactions. Common types of vouchers include:
· Cash Voucher: Documents cash received.
· Charge Voucher: Records charges to a guest account.
· Credit Voucher: Shows a credit transaction.
· Transfer Voucher: Facilitates transfer of charges between accounts.
· Paid-Out Voucher: Reflects expenses paid on behalf of a guest.
1.2 Record Keeping System
For hotels to maintain accurate financial transactions, guest billing, and general financial management, the record-keeping system is essential. The size of the hotel, its technological infrastructure, and its operational needs all influence the system selection. Three general categories can be used to classify the record-keeping systems:
1.2.1 System Without Automation
All money transactions and guest account information are manually entered into the non-automated system, which uses a conventional manual record-keeping technique. Usually, this system includes:
• Physical Ledgers:
Manual documentation of visitor details, hotel rates, and extra services is done in physical ledgers. The municipal ledger and the guest ledger are two examples of distinct ledgers that are kept apart.
• Vouchers: These documents are proof of every transaction. For instance, a meal and beverage coupon are created and subsequently added to the guest's folio when they eat at a hotel restaurant.
• Manual Posting: There is a greater chance of human error when charges and payments are manually posted to guest folios.
• Time-consuming: Manual entries need careful attention to detail and can be time-consuming and labor-intensive.
As an illustration, the front desk employees of small guest homes or lodges may keep a physical notebook in which they physically update the visitor names, room numbers, and incurred charges at check-out.
1.2.2 Semi-Automated System
The semi-automated system combines some technological assistance with manual record-keeping. Although some manual intervention is still required, this method increases efficiency:
• Cash Registers and Calculators:
Cash registers and calculators help control cash inflows and outflows and aid in correct billing, even though transactions are still manually recorded.
• Electronic typewriters:
These enhance the appearance and readability of papers by being used to create bills and invoices.
• Posting Machines: To minimize human error, charges are posted to guest folios using mechanical posting machines.
Although this system is better than non-automated ones, it still lacks the sophisticated features of fully automated alternatives.
Example: To handle financial transactions, medium-sized hotels making the switch to digital systems may employ cash registers in addition to manual ledgers.
1.2.3 Fully Automated System
A fully automated system uses Property Management Systems (PMS) and cutting-edge technology to manage every facet of front office accounting online. This contemporary method has various advantages:
• PMS, or property management systems: Reservations, billing, guest folios, and financial reports may all be managed centrally with the help of programs like Opera, Fidelio, and eZee FrontDesk.
• Accuracy and Efficiency: Real-time transaction recording reduces human mistake and gives guest accounts immediate updates.
• Electronic Folios and Ledgers: Electronic folios and ledgers are used to manage both guest and non-guest accounts, facilitating rapid access and effective processing.
• Voucher automation: When services are provided, vouchers are created automatically, and costs are immediately recorded to the relevant folios.
• Reporting and Analysis: The system can generate financial reports, audit trails, and analytics to support management decisions.
Example: Large hotel chains and luxury resorts often use fully automated systems to streamline front office operations, enhance guest experiences, and maintain precise financial records.
1.3 Credit Monitoring and Charge Privileges
Monitoring Credit in the Hotel Sector
One crucial procedure in a hotel's front desk accounting system is credit monitoring. It entails methodically controlling and monitoring the credit given to visitors while they are there. The goal is to minimize the hotel's financial risks by making sure that the guests' incurred spending don't above their predetermined credit limits. By averting possible losses from overextended credit or delinquent invoices, effective credit monitoring protects the hotel's earnings.
Key responsibilities of the front office staff in credit monitoring include:
• Regularly Examining visitor Accounts: Front desk staff members examine visitor folios on a regular basis to ensure that the total costs stay within reasonable bounds.
• Tracking High-Balance Reports: Hotels frequently produce daily reports that show which guest accounts are getting close to or beyond their credit limitations. This enables proactive management and, if necessary, intervention.
• Interaction with Guests: The front desk may politely remind a guest to pay off a portion of their account or approve extra cash if their costs are approaching the predetermined limit.
• Coordinating with Other Departments: To precisely manage charges and maintain real-time account status, the front office collaborates closely with the food and beverage, spa, and other service departments.
Charge Privileges
Instead of paying right away at every service point, charge privileges allow visitors to conveniently charge expenses straight to their room account. These benefits are frequently offered at check-in, typically following payment completion using one of the following methods:
Credit Card Pre-Authorization:
To reserve money for anticipated expenses, such as room charges, taxes, and possible incidentals, the front desk pre-authorizes a specific amount on the visitor's credit card. Pre-authorization guarantees that funds will be accessible when the final settlement is due, but it does not charge the card right away.
Billing Arrangements with Corporate Clients:
Hotels frequently create billing agreements with businesses for corporate reservations or business travelers. Through these agreements, visitors can charge their spending to a master account, which is subsequently billed to the business. These arrangements are typical for long-term business visits, corporate retreats, and conference attendance.
Cash or Debit Deposits: Certain hotels let visitors make cash deposits or keep money on a debit card, granting them the ability to charge up to the amount placed. Guests without credit cards will find this option quite helpful.
Examples of Charge Privileges in Action:
• Room Service and Dining: A guest can order meals from the in-room dining service and have the cost applied to their room account.
• Spa and Recreation Services: Many luxury and resort hotels allow visitors to enjoy spa treatments or participate in recreational activities without immediate payment.
• Retail Purchases: Certain hotels allow room charges for shopping expenses if they have boutiques or gift stores on the premises.
Ensuring Compliance with Hotel Policies:
The front desk is responsible for making sure that charge privileges are in line with the hotel's credit policies and that any possible risks are reduced by open communication, frequent account audits, and swift action when credit limits are approached.
1.4 Cash Sheet
One of the most important financial documents used by hotel front desks is the cash sheet, which is used as a daily financial record to ensure transparency and accuracy in the handling of cash flows within the hotel's accounting system. The cash sheet also serves as a control tool, helping to reconcile recorded transactions with actual cash in hand, thereby minimizing discrepancies and potential financial errors.
Key Components of a Cash Sheet
Typically, a thorough cash sheet consists of the following components:
1. Opening Cash Balance:
This is the sum of money that is initially on hand at the front desk when the shift begins. Usually, a fixed float amount is offered to make everyday tasks like providing change to visitors easier.
2. Cash Receipts:
All incoming cash transactions are documented in this area, including:
o lodging Payments: Cash is required to cover taxes and lodging fees.
o Advance Deposits: Funds obtained in advance for early payments or bookings.
o Miscellaneous Sales: Revenue from services like reservations for travel, tour packages, or souvenir shops.
3. monetary Payments (Cash Paid Out):
This refers to all monetary outflows, including:
o Guest Refunds: When a cash refund is issued.
o Petty Cash Expenses: Small outlays for office supplies, last-minute purchases, or gratuities that are paid for with cash.
Employee cash advances are any funds provided to employees as part of approved advances.
4. Cash Advances to visitors:
As part of charge privileges, hotels occasionally give their visitors cash advances, which are often charged on their room folios. To keep precise records of financial withdrawals, these transactions are entered into the cash sheet.
5. Cash Deposits:
The front desk puts extra cash into the hotel's main safe or straight into the bank at the conclusion of each shift or day. To guarantee cash security and lower the possibility of inconsistencies, the cash sheet records these deposits.
6. Final Cash Amount:
At the end of the shift, this is the last cash count. Cash Receipts - Cash Payments - Cash Deposits = Opening Cash is the formula used to get the closing balance.
7. Verification and Signatures:
The cashier or front desk employee, accompanied by a manager or supervisor, checks the cash sheet at the conclusion of each shift. Internal controls include the provision of signatures to verify the accuracy of transactions that have been recorded.
Purpose and Importance of a Cash Sheet
• Financial Accuracy: Lowers the likelihood of cash mismanagement by assisting in the reconciliation of cash on hand with documented transactions.
• Internal Control: Makes front desk employees accountable since inconsistencies may be promptly found and fixed.
• Audit Trail: Offers a record of financial transactions, which is helpful for internal or external audits.
• Operational Efficiency: Facilitates a seamless transition between shifts by streamlining end-of-day finance operations.
Example Scenario: Cash Sheet Use
Imagine a hotel front desk where the initial cash amount is ₹10,000. During the shift, the hotel gets ₹5,000 in cash from the gift store and ₹15,000 in room payments. Additionally, the front desk deposits ₹15,000 in the hotel's safe and gives ₹2,000 as a reimbursement. Hence, the closing cash balance would be as follows: ₹10,000 for the opening, ₹15,000 for the receipts, ₹5,000 for sales, ₹2,000 for refunds, ₹15,000 for deposits, and ₹13,000 for the closing amount.
This example shows how the cash sheet helps to maintain sound financial management at the front desk by guaranteeing that all cash transactions are appropriately documented and reconciled.
1.5 Floor Limit and House Limit
Floor limit and house limit are essential financial controls in hotel front office accounting that are used to monitor guest credit and reduce financial hazards. These restrictions aid in striking a balance between providing visitors with convenience and safeguarding the hotel's bottom line.
The floor limit
The maximum amount that a visitor may charge to their room account without further permission from the credit department or hotel management is known as the floor limit. It is a pre-established cap that the hotel has set in order to manage credit risks and guarantee efficient guest spending monitoring.
Key Aspects of Floor Limit:
• Credit Control Measure: Prevents visitors from going above a safe credit limit without permission from management.
• Authorization Requirement: Front desk employees must get additional authorization before processing further charges from guests whose charges approach or surpass the floor limit.
• Vary by Payment Method: The bank that issues the credit card frequently sets the floor limit for credit card transactions. The hotel determines its own floor limit for in-house financing based on risk assessment and policy.
Example of Floor Limit Usage:
Before allowing any more charges to be made to a guest's folio, the front desk must obtain permission from the finance or credit manager if the hotel's floor limit is ₹10,000 and the guest's total charges have reached ₹9,500. This measure lessens the possibility of chargebacks or nonpayment.
House Limit
The overall credit limit that hotel management assigns to a person or group of visitors is known as the "house limit." The house limit is the total amount of credit that can be extended throughout the course of the entire stay, as opposed to the floor limit, which is applicable to individual transactions. It accounts for room rates, meals, spa treatments, and any other services that the hotel charges for.
Factors Influencing House Limit:
• Hotel Category: The home limit is largely determined by the hotel's level (e.g., 3-star, 4-star, 5-star).
• Guest Profile: Higher house limits may be granted to VIP visitors, business clients, or members of loyalty programs.
• Length of Stay: In order to cover recurring costs, guests who stay longer may have greater restrictions.
• Special Arrangements: Depending on the terms of the contract, the housing limit may be negotiated for gatherings, conferences, or big groups.
House Limit by Hotel Category:
Hotel Category
Typical House Limit
Description
3-Star Hotels
₹20,000 - ₹50,000Generally lower house limits due to smaller operational scale and a focus on budget-conscious travelers. These hotels prioritize financial security and risk minimization.
4-Star Hotels
₹50,000 - ₹1,00,000
Provide moderate house limits, offering a balanced approach between guest convenience and financial control. These hotels cater to both leisure and business travelers.
5-Star Hotels
₹1,00,000 and above
High house limits are typical, reflecting the premium services, high-spending guests, and international clientele. These hotels often have more flexible credit policies, especially for corporate and VIP guests.
Examples:
• 3-Star Hotel Scenario: A family staying at a 3-star hotel might have a house limit of ₹30,000, which would include meals and room fees. If they go above this amount, they will need to pay or get permission.
• 4-Star Hotel Scenario: A business visitor staying at a 4-star hotel may have a ₹75,000 house limit, which easily covers incidental costs, eating, and room charges.
• 5-Star Hotel Scenario: A VIP visitor to a five-star hotel may be granted a house limit of ₹2,00,000, along with additional freedom to indulge in upscale amenities like spa services, fine dining, and in-hotel shopping.
Importance of Floor and House Limits in Hotel Operations:
• Risk management:
Assists in avoiding monetary losses due to unpaid invoices or accounts that cannot be collected.
• Guest satisfaction:
strikes a balance between the necessity for financial supervision and guest convenience.
• Operational Control:
Helps front desk employees efficiently keep an eye on visitor spending.
• Financial Planning Support:
Assists in precise budgeting and financial forecasts.
FRONT OFFICE
1.1. Accounting fundamentals (types of accounts, ledger, folios, vouchers)
1.1.1 Types of accounts,
1.1.2 ledger, folios,
1.1.3 Vouchers
1.2. Record keeping system (non automated, semi-automated and fully automated)
1.3. Credit Monitoring and Charge Privileges
1.4. Cash sheet
1.5. Floor Limit, House Limit
FRONT OFFICE ACCOUNTING
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