Student Study Notes - Chapter 1

Unique Aspects of the Hospitality Industry

Hospitality can be defined as the friendly and charitable reception and
entertainment of guests or strangers.
While each of the industry sub-segments are very different and can be classified
in very different ways (for example, profit vs. non profit; or corporate vs.
privately owned), one way to classify them is by their emphasis on either lodging
or food and beverage (F!) services. "t is the emphasis on providing lodging and
meals (in a variety of settings) that distinguishes those who are considered to be
wor#ing in the $hospitality% industry.
Within the lodging and food services industries are a variety of related fields,
including hotels, restaurants, clubs, resorts, casinos, cruise ships, theme par#s; the
recreation and leisure mar#et& arenas, stadiums, amphitheaters, civic centers, and
other recreational facilities; the convention center mar#et; the education mar#et&
colleges, universities, and elementary and secondary school nutrition programs;
the business dining mar#et& corporate cafeterias, office complexes, and
manufacturing plants; the health care mar#et& long-term care facilities and
hospitals; and the corrections mar#et& 'uvenile detention centers and prisons.
(he number of opportunities offered by the hospitality industry is significant, as
are the opportunities for those managers who understand and can utili)e their
hospitality accounting s#ills.
The Purpose of Accounting in the Hospitality Industry
Accounting is the process of recording financial transactions, summari)ing them,
and then accurately reporting them. *n accountant is a person s#illed in the
recording and reporting of financial transactions.
*ccounting is utili)ed by all managers in business. *ccounting in the hospitality
industry is utili)ed every time a guest purchases food, beverages, or a hotel guest
room.
!usinesspersons estimate their costs before they decide to build hospitality
facilities and often see# loans from ban#s to help them. !an#s want to #now
about the proposed business+s estimated financial performance before they decide
to lend it money.
(he owners of a hospitality facility want to monitor their business,s financial
condition; investors want to put their money in businesses that will conserve or
increase their wealth. (o monitor their investments, owners and investors see# out
and rely upon accurate financial information.
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*ccounting is not the same as management; accounting is a tool used by good
managers.
.ospitality managers must learn to use accounting techni/ues as well as their
education, experience, values, and goals to ma#e the very best management
decisions possible for themselves and the businesses they are responsible for
managing.
Branches of Accounting
inancial Accounting
!usiness accountants who speciali)e in financial accounting are s#illed at
recording, summari)ing, and reporting financial transactions. Financial
transactions include re!enue, the term used to indicate the money you ta#e in,
e"pense, the cost of the items re/uired to operate the business, and profit, the
dollars that remain after all expenses have been paid.
#e!enue $ %"penses & Profit
Financial accounting also includes accounting for assets, which are those items
owned by the business; lia'ilities, which are the amounts the business owes to
others; and o(ners) equity, which is the residual claims owners have on their
assets, or the amount left over in a business after subtracting its liabilities from its
assets. (hese transactions can be used to develop the following e/uation for the
balance sheet&
Assets & *ia'ilities + ,(ners) %quity
Cost Accounting
Cost accounting is concerned
with the classification, recording and reporting of business expenses.
For cost accountants, a cost, or expense, is most often defined as $time or
resources expended by the business.%
0ost accountants determine costs by departments, by business function or area of
responsibility, and by the products and services sold by the business.
Ta" Accounting
* ta" is simply a charge levied by a governmental unit on income, consumption,
wealth, or other basis.
Ta" accounting concerns itself with the proper and timely filing of tax payments,
forms, or other re/uired documents with the governmental units that assess taxes.
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2rofessional tax accounting techni/ues and practices ensure that businesses
properly fulfill their legitimate tax obligations.
3ome of the taxes hospitality managers may be responsible for include
occupancy ta"es, sales ta"es and payroll ta"es.
Auditing
(he auditing branch of accounting is chiefly concerned with the accuracy and
truthfulness of financial reports. "t is designed to point out accounting wea#nesses
and irregularities and thus prevent accounting fraud.
*n audit is an independent verification of financial records. *n auditor is the
individual or group of individuals that completes the verification.
(he auditing branch is also concerned with safeguarding the assets of a business
from those unscrupulous individuals who would see# to defraud or otherwise ta#e
advantage of it.
(he total collapse of the 4nron 0orporation in late 155-, as well as other highly
publici)ed business failures, demonstrates the importance of auditing. 6ampant
violation of standardi)ed accounting rules led 4nron+s investors, creditors,
employees, and others to believe the company was financially sound when, in
fact, it was not.
"n part because of the potential damage that could be done by unscrupulous
corporate managers, in 1551 the 7nited 3tates 0ongress passed the Sar'anes-
,"ley Act -S,./. (his law provides criminal penalties for those found to have
committed accounting fraud, and also covers the regulation of auditors assigned
the tas# of verifying a company+s financial health.
"ndividuals who are directly employed by a company to examine that company+s
own accounting procedures are called internal auditors. %"ternal auditors are
individuals or firms who are hired specifically to give an independent (external)
assessment of a company+s compliance with standardi)ed accounting practices.
"n larger hotels, the controller, who is the person responsible for managing the
hotel+s accounting processes, may serve as the auditor. "n very large properties,
full-time individuals are employed specifically to act as the property+s in-house
auditors.
0anagerial Accounting
0anagerial accounting is the system of recording and analy)ing transactions for
the purpose of ma#ing management decisions.
"ts proper use re/uires s#ill, insight, experience, and intuition. (hese are the same
characteristics possessed by the best hospitality managers.
* brief summary of the branches of accounting and the main purpose of each can
are shown in Figure -.-.
"n the 7nited 3tates, those individuals recogni)ed as highly competent and
professional in one or more of the branches of accounting have earned the
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designation of Certified Pu'lic Accountant -CPA/. (o become a 02*, a person
must meet the re/uirements of the state or 'urisdiction in which they want to
practice.
*nother certification that may be earned is the Certified 0anage1ent
Accountant -C0A/. * 09* assists businesses by integrating accounting
information into the business decision process.
.ospitality professionals who wor# extensively in the areas of accounting and
technology often become members of the Hospitality inancial and Technology
Professionals -HTP/. .F(2 offers its own certifications for hospitality
professionals wor#ing in the accounting and technology areas, and provides a
global networ# for them.
2hy Hospitality 0anagers Use 0anagerial Accounting
Hospitality accounting is not a separate branch of accounting, but it is a very
speciali)ed area that focuses on those accounting techni/ues and practices used in
restaurants, hotels, clubs, and other hospitality businesses.
(hose practicing managerial accounting in the hospitality industry have
speciali)ed #nowledge. (hat #nowledge is the result of learning the intricacies of
the restaurant or hotel business and then applying what they #now to a financial
analysis process.
6efer to Figure -.1 for a hospitality accounting term /ui) which will confirm
some of the reasons why managerial accounting is a separate field of study.
The Unifor1 Syste1 of Accounts
9any hospitality companies re/uire that their managers use a series of suggested
(uniform) accounting procedures created specifically for their own segment of the
hospitality industry.
* unifor1 syste1 of accounts simply represents agreed upon methods of
recording financial transactions within a specific industry segment.
"n the hospitality industry, some of the best #nown of these uniform systems are&
Unifor1 Syste1 of Accounts for #estaurants -USA#/, developed for the
restaurant industry by the :ational 6estaurant *ssociation (:6*).
Unifor1 Syste1 of Accounts for the *odging Industry -USA*I/,
developed for the lodging industry by the .ospitality Financial and
(echnology 2rofessionals (.F(2) and the 4ducational "nstitute (4") of the
*merican .otel ;odging *ssociation (*.;*).
Unifor1 Syste1 of inancial #eporting for Clu's -US#C/, a club
accounting resource for club managers, officers, and controllers produced
through the 'oint efforts of .ospitality Financial and (echnology 2rofessionals
(.F(2) and the 0lub 9anagers *ssociation of *merica (09**).
%thics and Hospitality Accounting
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3ometimes it may not be clear whether an actual course of action is illegal or
simply wrong. *n accounting activity may be legal, but still the wrong thing to do.
%thics refers to the choices of proper conduct made by an individual in his or her
relationships with others. 4thical behavior refers to behavior that is considered
$right% or the $right thing to do.%
.ow individuals determine what constitutes ethical behavior can be influenced by
their cultural bac#ground, religious views, professional training, and their own
moral code.
%thical 3uidelines4
-. "s it legal=
1. >oes it hurt anyone=
8. *m " being honest=
<. Would " care if it happened to me=
?. Would " publici)e my action=
4thical behavior is always important to responsible individuals as well as their
organi)ations. (here are rules that must be followed if a manager+s financial
records are to be trusted and if the interpretations made about that financial data is
to be perceived as honest.
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