Hotels are a diverse segment of the hospitality industry, ranging from small, owner-operated bed and breakfasts to large multinational chains. But regardless of size, they all share at least two common characteristics and challenges: They’re usually 24/7 operations that never close, and they need good financial information to run their businesses. Hotel accountants fill that need for high-quality financial information using a combination of accounting standards and industry guidelines, all of which are explained below.
What Is Hotel Accounting?
Generally speaking, accounting is the systematic process of recording and organizing all the financial transactions of a business to provide information about the business’s financial health for internal and external stakeholders. Internally, managers use the financial reports for analysis and decision-making. Externally, investors, lenders and other stakeholders base decisions on standard financial statements. Hotel accounting adds guidelines to basic accounting in order to address the specific nuances of the hotel industry. The hotel market — generally defined as hotels and guesthouses but excluding private room rentals by owners — is expected to exceed $400 billion worldwide in 2023.
- Hotel accounting supports the high-volume, 24/7/365 lodging business and all its ancillary services.
- In addition to national and international accounting standards, hotels follow hospitality-industry guidelines to create comparable, standardized financial information.
- Managerial accounting, including industry-specific metrics, is essential to managing hotels’ finite room inventory and to evaluate the results of ancillary services.
- Best practices and specialized personnel roles help hotels overcome unique accounting challenges.
- Accounting systems that integrate operational management software for room-booking and point-of-sale transactions are vital for efficient hotel accounting operations.
Hotel Accounting Explained
In the U.S., hotel accounting follows the same Generally Accepted Accounting Principles (GAAP) as other businesses. International hotel businesses follow International Financial Reporting Standards (IFRS). Some hotels use the cash basis of accounting, which reflects transactions when cash changes hands. However, most follow the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred, rather than when the corresponding payment transactions occur. Beyond the GAAP and IFRS standards, hotels also follow the Uniform System of Accounts for the Lodging Industry (USALI) guidelines that aim to standardize financial classifications and industry language so accounting reports can be compared more easily among different hotels. A good way to think about these standards is that GAAP and IFRS rules dictate how hotels account for transactions, while USALI guides the way the accounting information is classified and presented.
How Is Accounting Different for Hotels?
While basic bookkeeping and accounting for hotels is similar to accounting for other businesses, in practice, there are four underlying industry dynamics that influence hotel accounting processes. First, the various ownership structures common to hotels can add a layer of accounting complexity that necessitates expertise in partnerships, franchises and corporations. Second, it’s common for hotels to hire third-party property managers to handle their accounting needs, among other services. Third, hotels rely heavily on operating management systems for tracking bookings in order to maximize room utilization. The level of integration between the operating management and accounting systems can have a significant impact on hotel accounting processes, especially revenue recognition. And last, many hotels offer services beyond lodging, such as restaurants, events and tours, and maintain separate ledgers and accounts for each service. This makes classification of revenue and expenses significantly challenging for hotel accountants.
Financial Statements in Hotel Accounting
Hotels issue the same set of financial statements as other industries: balance sheet, income statement, cash flow statement, equity statement and notes that support these statements. As with the cross-industry norm, hotel financial statements typically show comparative information, such as the current period compared to the same period in the prior year (for example, Q1 2023 compared to Q1 2022) or the current month alongside year-to-date data (e.g., September 2023 alongside the nine months ended September 2023). Where financial statements for hotels begin to differ is in their setup, as outlined by USALI standards. These standards help hotel accountants present information in consistent line items and descriptions, which aids comparisons. USALI standards are especially pertinent for presenting information for a hotel’s different departments, lines of business or revenue streams, for example, separating food-and-beverage charges from room bookings.
A balance sheet shows the financial position of a company by listing assets, liabilities and equity — in other words, what a company owns and what it owes. The balance sheet adheres to the fundamental accounting equation: Assets = Liabilities + Equity. It’s important to note that a balance sheet is a snapshot reflecting a single point in time, such as “as of December 31, 2023” rather than “for the year ended” on that day. In addition to generic balance sheet items, such as cash, property, accounts payable, debt and owner’s equity, hotel-specific balance sheets tend to also include unique items, such as food and beverage inventory, guest ledger, city ledger, operating equipment, key money, gift cards and certificates payable. The guest ledger is an industry term of art that represents the amount owed by all current in-house guests for room charges, parking, etc. A city ledger is similar but only includes guests that have a master credit arrangement and that will be billed later, as is often the case with corporate clients. Operating equipment, for its part, includes inventories of china, uniforms, towels and robes. Key money is the deposit paid to a hotel by a hotel property manager to secure its management agreement.
Income Statement (Profit and Loss Statement)
A company’s income statement shows its revenue, expense and profit (or loss) over a specific period of time. It is commonly called a “P&L,” short for profit and loss, which is another name for the income statement. Often considered the most important of the financial statements because it gives a sense of the financial health of a business’s operations, income statements are cumulative, meaning that they reflect all the revenue, expenses and profits over the period covered, rather than offering a snapshot at a point in time, as a balance sheet does. Hotel P&Ls tend to follow the multistep income statement style, showing revenue and expenses in separate lines by department, such as room rentals, food and beverage, gift shops, spas or laundry services. Hotels have the discretion to itemize as many or as few of those departments as they believe to be useful to their internal and external stakeholders.
Cash Flow Statement
The cash flow statement presents a company’s cash inflows and outflows over a period of time. Because It reconciles cash balances at the beginning of a period to cash at the end, it is helpful for measuring a company’s liquidity. Cash flow statements organize all of the period’s cash inflows and outflows into three categories: operating, investing and financing activities. Cash flow statements can be particularly helpful for hotel managers who want to assess whether they have enough cash on hand to meet their obligations. For hotels, cash inflows from operations typically include guest receipts, event receipts, food and beverage charges, tours and parking. Examples of outflows would be expenses like housekeeping payroll, costs of food and beverage, utilities payments and so on. Investing activities common to hotel cash flow statements include capital improvements made during renovations (outflow), and acquisition (outflow) or selling (inflow) of equipment. Cash flow from financing activities might relate to changes in mortgages on hotel property or distributions of profit to owners or franchisors.
Statement of Changes in Equity
The statement of changes in equity, aka the equity statement, highlights changes in each equity account shown on a company’s balance sheet, including stock, capital contributions or withdrawals, and retained earnings. Like the income statement and cash flow statement, the equity statement covers a particular period of time and is typically formatted like a reconciliation — the equity balance at the beginning of the period is increased and reduced by transactions recorded during the period to arrive at the ending balance for the period. Examples of transactions that increase or decrease a hotel’s equity balance include issuance of common stock, hotel-partner capital contributions, distributions to owners, payments of dividends, and any foreign currency translation adjustments. Often, a hotel’s retained earnings account becomes a highlight of its equity statement. Undistributed net income and losses from the P&L accumulate in the retained earnings account, which, therefore, provides a good indication of a hotel’s ability to self-fund future growth.
Notes to Financial Statements
The notes to the financial statements look and feel different from the other financial statements. The notes provide more information about specific line items in the financial statements, presented in a written format that follows specific GAAP guidelines. They can be either prepared as a separate financial statement or presented as numbered footnotes on the financial statement they annotate. The notes are important because they provide clarity about the accounting methods used by the hotel, offer more detail on balances included in the various financial statements, and discuss significant items that aren’t required on the statements themselves, such as pending lawsuits. For example, a common, basic note might describe the brands held by a hotel group, the number of hotels in the group and where they are located. Other notes might be very technical, such as an explanation of how a hotel has complied with new accounting standards for its leased properties.
Hotel Accounting Metrics
Vigilantly monitoring operating metrics is particularly important for hotels, mostly because their main product, room rentals, consists of inventory that is both limited and perishable. Additionally, hotels with multiple ancillary revenue streams need to stay on top of the profitability of each one. USALI standards and tools, especially USALI’s suggested chart of accounts, can help hotel accountants capture data in a way that is optimized for analysis by hotel managers. This helps hotels build dashboards of useful, uniform metrics or key performance indicators (KPIs) that can be compared to those of other hotels or to industry benchmarks.
Eleven common hotel metrics are explained below, with their respective formulas. To illustrate the metrics consistently, the explanations refer to the following common data for a hypothetical hotel, The Sharp Inn, a boutique hotel with 15 rooms and a cafe:
- Total room revenue on 4/13/2023: $3,000
- Rooms sold on 4/13/2023: 10
- Cafe revenue on 4/13/2023: $800
- Food and beverage cost of goods sold (COGS) on 4/13/2023: $280
- Operating cost per room night: $75
- Daily payroll cost: $700
- Annual net operating income: $500,000
- Annual debt service: $240,000
Average Daily Rate (ADR)
ADR tells a hotelier how much revenue it gets per occupied room. It shows a blended rate for all the rooms sold that can be compared over time and against other hotels’ data. It’s a good indicator of market demand and helps interpret seasonality. The formula is:
ADR = Total room revenue / Number of rooms sold
For example, because Sharp Inn’s daily revenue for April 13, 2023, was $3,000 from 10 occupied rooms, the ADR for that day was $300 ($3,000/10).
A hotel’s rooms available can be thought of as its inventory on hand for sale. Hotel inventory is finite, based on the number of physical, rentable rooms and the number of nights in the period being evaluated. Rooms available includes only rooms in service and available for guests. Sharp Inn’s total room inventory of 15 was available on April 13. The formula for calculating rooms available for a month is:
Rooms available = (Total room inventory – Rooms out of service) x Number of days in the month
In a monthly analysis, Sharp Inn’s rooms available would be 450 (15 rooms x 30 days). But if Room 2’s air conditioner was broken, causing it to be out of service for a week, the monthly rooms available would be reduced by seven, to 443.
Occupancy rate indicates the percentage of rooms that were occupied at a single time. It’s an important metric, given that unoccupied rooms represent lost potential revenue that can’t be made up in the future, so higher occupancy is generally more desirable. A best-case scenario is that all rooms will be sold, but, in reality, the average occupancy rate in 2023 for U.S. hotels is projected to be 64%, according to the American Hotel & Lodging Association’s 2023 State of the Hotel Industry Report(opens in a new tab). The formula is:
Occupancy rate = (Number of rooms sold / Total rooms available) x 100
For example, with 10 of the 15 available rooms sold, Sharp Inn’s occupancy rate on April 13 was 67% [(10/15) x 100].
Revenue per Available Room (RevPAR)
RevPAR measures how well a hotel uses its inventory of rooms to generate revenue. It considers both ADR and occupancy rate. The formula is:
RevPAR = ADR x Occupancy rate
Sharp Inn’s RevPAR for April 13 was $201 ($300 x 67%).
Total Revenue per Available Room (TRevPAR)
TRevPAR is a broader metric that factors in all revenue for a hotel, not only room revenue. By doing so, it helps hoteliers understand how much revenue they are getting from both room and non-room sources, such as food and beverage or parking services. The formula is:
TRevPAR = Total revenue / Total rooms available
TRevPAR = Total revenue / Total rooms available
Sharp Inn’s TRevPAR for April 13 was $253 [($3,000 + $800) / 15].
Gross Operating Profit per Available Room (GOPPAR)
GOPPAR is a metric that considers a hotel’s gross operating profit, rather than top-line revenue. Gross operating profit is the revenue that remains after deducting direct operating costs. Direct operating costs for hotels include items such as rent, lease or mortgage payments, utilities and wages. The formula also takes occupancy rate into account by using total rooms available as the denominator. The formula is:
GOPPAR = (Total room revenue – Operating expenses) / Total rooms available
Sharp Inn’s accountants estimate that operating expenses are $75 per room night. Sharp’s GOPPAR for April 13 was $150, or [($3,000 – ($75 x 10)] / 15.
Cost of Goods Sold (COGS)
COGS is an accounting term that refers only to the direct costs to produce a product for sale, not to the broader group of operating costs required to run a business. While COGS isn’t applicable to a hotel’s primary room-rental revenue stream — the similar room-related expenses are usually called, simply, direct costs or cost of sales — hotels usually capture COGS separately for each of their ancillary revenue streams. For example, COGS for the hotel’s restaurant would include a variety of expenses, such as purchases of ingredients for food and beverages; direct labor costs for chefs, bartenders and service staff; and other direct costs incurred to produce the meals and drinks. The standard formula for COGS is:
COGS = (Beginning inventory for the period + Purchases during the period) – Ending inventory
Because COGS is calculated by aggregating the value of inventoried items sold during the period, determining inventory costs is a significant undertaking performed by the hotel’s inventory accountant (more on this role later). The USALI chart of accounts provides hoteliers with guidance about which account balances to include for each revenue stream.
Food Cost Percentage
Because food and beverage constitutes a significant line of business for many hotels, it’s usually accounted for in a separate profit center so as to better identify and manage the standalone revenue and costs. Food cost percentage contrasts the cost of ingredients used against the revenue from sales of food and beverage. These costs are a subset of the COGS for food and beverage sales. As a best practice, food cost percentage tends to run about 28% to 32% of food and beverage revenue. The food cost percentage formula is:
Food cost percentage = (Total food costs / Total food revenue) x 100
Sharp Inn’s food cost percentage is 35%, or ($280 / $800) x 100.
Labor Cost Percentage
Labor costs are a significant chunk of a hotel’s overall expenses — up to 50% of total costs in some cases. One way to manage this labor cost is to monitor it as a percentage of revenue. The percentage can be compared to other periods of time or to other hotels’ percentages to assess efficiency. Labor costs include wages, salaries, commissions and bonuses; employee benefits, such as vacation time; the employer’s portion of payroll taxes; and contributions for health insurance and retirement plans. Hotels analyze labor cost percentage in aggregate for the entire hotel, by department and by revenue stream (for example, separating percentages for room labor from restaurant labor). The labor cost percentage formula is:
Labor cost percentage = (Total payroll cost / Total revenue) x 100
Sharp Inn’s overall labor cost percentage is 23%, or ($700 / $3,000) x 100.
Earnings before interest, taxes, depreciation and amortization (or EBITDA) is an important financial metric that measures a business’s profitability. EBITDA is easily calculated using information found in a hotel’s P&L: Simply add back the expenses listed in its name (interest, taxes, depreciation and amortization) to the net income (or loss) for the period. Many investors, analysts and business managers believe that EBITDA is a better representation of the “true” health of a business’s operations than net income because it isn’t muddied by the impact of ownership structure, tax jurisdictions and non-cash “accounting” expenses, such as depreciation and amortization. EBITDA is especially helpful when comparing the performance of hotels located in different tax jurisdictions. The formula is:
EBITDA = Net income + Taxes paid + Interest expense + Depreciation + Amortization
Debt Service Coverage Ratio (DSCR)
DSCR is useful for both hoteliers and the lending institutions from which they borrow because it shows the relationship between a hotel’s net operating income and its debt expense (or service). The higher a DSCR, the more confident a lender can feel that the borrower can repay a loan. DSCR also helps hoteliers monitor the cash flow demands of taking on more debt. The net operating income used in DSCR calculations is a subset of net income that includes only the revenue and expenses associated with day-to-day business operations. Debt service is the total of all loan payments, including principal and interest. DSCR is typically calculated on an annual basis, using the following formula:
DSCR = Net operating income / Annual debt service
Sharp Inn’s DSCR is 2.1 ($500,000 / $240,000), which is interpreted as the hotel generating $2.10 for every $1 of debt service.
Essential Roles in Hotel Accounting
Accounting may not be the first function that comes to mind when pondering careers in the hotel industry, but many accounting roles are required to keep a hotel fiscally sound. Specific tasks and responsibilities may be somewhat fluid — large hotels may employ distinct staff for each of the essential roles described here, while small hotels typically combine duties in fewer positions. It’s also common to engage a hotel management firm to provide some or all of these roles. Regardless, the following are the essential roles in hotel accounting.
Of all the different types of accountants on a hotel’s team, the hotel accountant is the linchpin. The person holding this role tends to handle the majority of financial accounting transactions, including tracking revenue and expense activity, organizing internal and external financial reports and performing account reconciliations. Hotel accountants must possess GAAP or IFRS (depending on jurisdiction) and USALI expertise.
Accounts Payable/Receivable Clerk
The accounts payable (AP) clerk is responsible for ensuring that vendor bills are accurate, properly authorized and paid in a timely manner. This person also reviews and reconciles vendor statements to verify credits, charges and payments. Hotel AP clerks must be proficient at applying the hotel chart of accounts for proper expense coding, critical for maintaining accurate data in the different hotel cost centers. The accounts receivable (AR) clerk focuses on getting bills to customers, processing payments and providing receipts and refunds. The AR clerk is also responsible for invoicing corporate, group and event billings. Most often these two clerical roles are separated, since AP relates to payments out to suppliers and AR relates to billing customers.
The night auditor role is unique to hotels, necessary because they operate 24/7/365. The person in this position often handles typical front-desk customer service, in addition to accounting responsibilities. During the overnight hours, the night auditor completes end-of-day processing, such as posting charges to customer accounts, printing customer bills for the next day, balancing cash drawers and running several financial reports.
The financial controller of a hotel oversees all accounting functions and maintains the hotel’s books and records. Considered the lead accountant, the financial controller ensures that all accounting information complies with relevant standards and guidelines. In addition, the controller is responsible for monitoring internal controls and for preparing hotel financial statements and any supporting analyses. Depending on the size of the hotel’s accounting team, the controller may also be involved in budgeting, forecasting, cash management and working with outside tax and audit preparers. As a senior manager, the financial controller is in charge of the other members of the accounting department.
Hotel payroll managers share many responsibilities with their counterparts in other industries. They are tasked with ensuring that new hires and terminated employees are correctly set up or released in the company’s payroll system, that hourly and salaried employees are paid accurately on every payday and that all payroll withholdings and adjustments are correctly processed. Unique nuances in the hotel industry include dealing with a wide variety of employee payroll schemes, such as salaried, commissioned, hourly and tip-eligible, as well as with union and non-union employees.
Hotels employ inventory accountants to maintain accurate financial records for their various inventoriable assets, such as furniture and fixtures, food and beverage items, equipment, uniforms or other hospitality equipment and supplies. The inventory accountant is responsible for maintaining accurate physical inventory counts, as well as assigning costs using the appropriate inventory methodology, such as first in, first out (FIFO) or last in, first out (LIFO).
Chief Financial Officer (CFO)
CFOs are the top-level financial executives responsible for the overall fiscal well-being of a firm. This responsibility spans accounting, financial reporting, financial planning and analysis, taxes, treasury, mergers and acquisitions, investor relations, and it often extends into insurance, legal and risk management areas. In addition to managing the personnel and issues embedded in all the other accounting and finance roles, CFOs in the hotel industry are expected to help drive top-line growth, increase operating efficiency and spot trends in the marketplace to create actionable plans to keep their hotel(s) ahead of the competition.
Hotels have perishable inventory, which makes pricing strategies and revenue maximization a crucial challenge. The revenue manager is tasked with managing and monitoring room sales and room rates to optimize the hotel’s revenue. This includes managing various sales channel agreements, such as those with travel agents and online booking platforms. Given the nature of the role, revenue managers rely more on financial, analytical and marketing skills than on basic accounting knowledge.
Hotel Accounting Challenges
Beyond the underlying dynamics that make hotel accounting different from accounting activities in other industries, the following specific operational challenges raise the level of a hotel’s accounting complexity.
Hotels never close (with rare exceptions, such as resort hotels with an “off season”). This means that there is a never-ending flow of transactions and that all staff must always prioritize serving customers — even during times when accountants are closing the books on a month, quarter or year. The night auditor’s role is meant to relieve some of the pressure continuous operations put on both the people and the accounting systems involved, but automated software functions are also vital.
Multiple Revenue Streams
Hotels reap the majority of their revenue from room rentals. But for some properties, non-room revenue streams — think: diverse activities, such as room service, meeting space rentals, on-site restaurant and bar sales, valet and parking charges, vending machines, spa and massage services, gift shops, in-room minibars and movie rentals — can contribute up to half. It’s important to account for each revenue stream and the associated expenses separately, so that each can be evaluated on its own. This challenge requires that transactions be coded and classified correctly, using a robust chart of accounts and well-trained accountants.
Changing Room Prices
AR departments have their hands full when billing customers, as hotel room rates are constantly changing. Dynamic pricing, similar to that used by the airline industry, causes room rates to vary according to seasonality, occupancy and weekend events. In addition, incidentals and special group pricing or package pricing increases billing complexity. Beyond adding to the challenge of billing actual revenue, changing room prices also make budgeting and forecasting more difficult.
Hotels engage with a wide variety of vendors to support their operations. Common examples include food service, bar supplies, linen supply and cleaning, security, technology support, laundry, disposables (such as paper products) and transportation. The sheer number of vendors can be hard for a hotel AP clerk to manage. Additionally, some vendors may be under contract while others aren’t, which can make it cumbersome to track expenses. Staying on top of contracts and payments is especially important if the flow of products and services is not to be interrupted.
Complex Payroll Costs
Payroll for a hotel can be a challenge because of the number of employees, their turnover rates and the wide variety of employee payroll schemes. U.S. hotels are projected to employ over 2 million workers in 2023, and even small hotels, like our hypothetical Sharp Inn, require a significant number of staff to operate all their functions all day, every day. In addition, employee turnover is notoriously high in the hotel industry, especially post pandemic, which makes extra work for payroll managers who need to set up new employees and pay out those who are departing. Finally, the variety of payroll schemes, from salaried and commissioned to hourly and tip-eligible, adds a level of complexity even when the payroll function is assisted by payroll processing software.
Compliance and Audit Requirements
Hotels must comply with many different regulations, both financial and operational. The accounting team is often charged with not only handling all compliance but also being up-to-date on regulatory changes, which is a significant workload challenge. The hotel’s accounting records must be properly organized to ensure accuracy, completeness and compliance with accounting and industry standards (such as GAAP and USALI) when producing financial statements, which are often subject to independent financial audits, internal audits from corporate owners and, of course, tax audits. Operational compliance also requires meticulous record-keeping to satisfy agencies involved in health and safety, as well as for licensing bodies, like those for liquor licenses.
Increased Need for Managerial Accounting
Managerial accounting is a specific type of accounting that focuses on creating customized reports and analyses to help management make better-informed financial and operational decisions. It relies on the hotel’s accounting data, alongside other operating and industry statistics, such as the various KPIs and metrics discussed previously. Managerial accounting can be particularly significant for hotels, which use it to optimize profitability from their room inventory and their diverse revenue streams from other services, such as restaurants, laundry and events.
Hotel Accounting Best Practices
Several best practices can help mitigate the risks and challenges of hotel accounting. The following five tactics can be especially helpful for hotels that handle their accounting in-house, without the benefit of outside property managers.
Optimize the Night Audit
Clear policies and procedures are crucial for optimizing the value of night audits within a hotel accounting department because they help standardize each night’s audit, making it more reliable. Hotels accomplish this by documenting their standard operating procedures, using quality assurance checklists, deploying automated software wherever possible, thoroughly training night auditors and regularly reviewing their work. It’s also a best practice to cross-train several employees who can share the responsibility during the 365 nights in a year.
Implement a Hotel Accounting System
Accounting software is a must-have for hotels of any size. The volume of transactions, the number of vendors and the need to separate the various service P&Ls make using manual processes or spreadsheets a nonstarter. Further, integrating the accounting system with other hotel software, such as point-of-sale (POS), payroll and reservation systems, reduces the amount of data entry required of frontline staff and the accounting team, lowering the likelihood of making manual errors.
Maintain a Strict Audit Trail
Hotel accountants need to go beyond simply keeping accurate books and records. They also must maintain organized backup and documentation that supports all of the hotel’s financial activity. Maintaining an audit trail of all transactions, for example, helps customer service and vendor relations run more smoothly. It also reduces the accountant’s time and effort necessary to perform all types of audits. Furthermore, audit trails minimize the likelihood that omitted or duplicate transactions will occur, lessening the potential for errors that lead to rework.
Use Separate Ledgers
It’s a best practice to use separate ledgers for each of the different hotel revenue streams, rather than using one single general ledger (GL). The GL is the record of a company’s accounts and their value, organized by the chart of accounts. When using separate ledgers, each subledger follows the same structural framework as the GL, and a summary of subledger activity is transferred to the GL on a regular schedule. Using different subledgers for each revenue stream/profit center/line of business helps capture financial transactions in the right account and allows balances to be more easily tracked for analysis.
Choose an Accounting Method Carefully
There are pros and cons to each of the two primary methods of accounting — the cash basis and the accrual basis. Choosing the best-fitting accounting method carries several implications, such as the different workload each demands, the expertise required and the usefulness of the resulting financial statements. The cash basis is simpler in concept and is usually easier to maintain because transactions are recorded when cash changes hands. This method requires less accounting expertise and may be appropriate for a small hotel’s financial reporting needs. However, the accrual basis of accounting is the only IFRS- and GAAP-compliant method because it tends to more accurately reflect the true financial state of a business. As result, external lenders and investors typically require accrual-based financial reports. In addition, GAAP compliance (or IFRS compliance, depending on jurisdiction) is required for hotel businesses that are publicly traded.
The Value of Hotel Accounting Software
Manual or spreadsheet-based accounting is unsuitable for all but the very smallest of hotels. Accounting software is essential for capturing a typical hotel’s large volume of financial transactions in an efficient and accurate way. It also saves processing time and frees up more time for analysis of the business, using dashboards and other automated tools, which can also help jumpstart hotel budgeting and forecasting. Further, accounting software is essential for scalability when a hotel launches new revenue streams or when accounting for multiple hotels in a group.
Streamline Your Hotel’s Financial Management With NetSuite
Hotel accounting has several industry-specific differences and challenges that go beyond standard business accounting requirements. Hotels need robust financial management solutions that meet their compliance obligations and provide the internal reporting necessary to help managers optimize operations and maximize profitability. NetSuite cloud accounting software is a scalable solution that eliminates many manual accounting processes, and it replaces or integrates them with multiple point solutions to become a single system of record for financial, inventory, POS, CRM and human capital management data. NetSuite’s embedded analytics reporting and customized dashboards can provide hotel managers with insights to help them make better-informed financial decisions using real-time data — a particularly important ability for a business that must operate 24/7/365.
Like most businesses, hotels require excellent accounting processes and data in order to accurately produce the standard five financial statements needed for internal managers and external stakeholders. Moreover, industry-specific USALI standards and operating dynamics, such as the demanding nature of continuous operations and the complexity of handling multiple, diverse revenue streams, up the ante for hotel accountants and the software they rely on. One of the biggest industry-specific challenges — namely, the limited and perishable nature of room inventory — increases the need for more timely managerial accounting reports to show progress toward efficiency targets and profitability KPIs. Specialized accounting roles, industry best practices and the right accounting software help hotels of all sizes meet these needs and overcome the challenges.
Hotel Accounting FAQs
How is accounting done in the hotel industry?
Hotels follow either the cash basis or accrual basis of accounting. They also adhere to industry reporting and classification standards, called the Uniform System of Accounts for the Lodging Industry (USALI). Some hotels do their own accounting, while others engage third-party management firms to perform this function.
What are the 5 most important hotel accounting roles?
Hotel accounting departments are led by CFOs and include many of the same accounting and bookkeeping positions as other businesses, such as accounts payable clerks, accounts receivable clerks and financial controllers. Five industry-specific roles that are particularly important in the hotel industry are:
- Hotel accountant: Handles the majority of financial transactions, including tracking revenue and expense activity, organizing internal and external financial reports, and performing account reconciliations.
- Night auditor: Unique to hotel accounting, night auditors perform end-of-day processing, such as posting charges to customer accounts, printing invoices for the next day, balancing cash drawers and running financial reports during the overnight hours.
- Payroll manager: Ensures that all employees are accurately paid on every payday and that all payroll withholdings and adjustments are correctly processed. The challenge here is that hotels use a wide variety of employee payroll schemes, such as salaried, commissioned, hourly and tip-eligible, and they often deal with union as well as non-union employees.
- Inventory accountant: Maintains accurate physical and financial records for various inventoriable hotel assets, such as furniture and fixtures, food and beverage ingredients, equipment, uniforms or other hospitality inventory, using the appropriate costing methodology.
- Revenue manager: Manages and monitors room sales, room rates and sales channel agreements to optimize the hotel’s revenue.
Is hotel accounting hard?
The level of difficulty of the underlying bookkeeping and accounting functions for hotels is similar to that of other businesses. Industry-specific issues that increase hotel accounting complexity include:
- Varying hotel ownership structures that require expertise in partnerships, franchises and corporations.
- Hotels’ heavy reliance on multiple point solutions for tracking bookings, inventory, point of sale (POS) and payroll, among others. The level of integration between accounting software and each of these systems significantly affects hotel accounting processes.
- Because hotels offer a wide array of services, the need for hotel accountants to separate accounts for each service, such as restaurants, events and spas.
What are the tax implications in hotel accounting?
Hotels deal with several different types of taxes. They collect and remit state and local sales taxes on services and are often required to collect municipal occupancy taxes. In addition, hotels pay income taxes on profits in accordance with IRS and state regulations for their filing status. Staying current on tax rules can be a significant challenge, especially for hotel groups that operate in multiple locations.
How are depreciation and amortization handled in hotel accounting?
Depreciation and amortization are two similar accounting concepts that serve to reduce an asset’s value. Depreciation is applied to fixed assets to reflect falling value due to wear or consumption. Amortization relates to an intangible asset’s loss in value due to contract expiration or obsolescence. Hotels use the same common depreciation and amortization methods as other industries, such as straight line, declining balance or units of production. A unique example of amortization in the hotel industry relates to key money (an amount paid to the hotel owner to secure a hotel management agreement or franchise agreement), which is amortized over the term of the hotel management agreement.