Financial & Accounting

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Account correction

In a hotel, account corrections are normally made on the same day that a transaction has been posted (before the night audit). It corrects errors that have been made to postings (e.g. if a wrong charge was posted to a room). Depending on the error it can either increase or decrease the guest account balance.

Account allowance

A reduction in a hotel guest account folio for unsatisfactory service, a rebate on a discount voucher, or if a correction is to be made to a posting, which has been made the previous day (after the night audit).

Yield statistic

The yield statistic is the ratio of actual revenue to potential revenue. Actual revenue is the revenue generated by the number of rooms sold. Potential revenue is the amount of money that would be received if all rooms were sold at their rack rates. Potential revenue can be determined in more than one way. Some hotels calculate their potential revenue as the amount that would be earned if all rooms were sold at the double occupancy rate. Other properties calculate their potential revenue by taking into account the percentage mix of rooms normally sold at both single and double occupancy.

Working capital

Working capital is normally defined as the monetary value of current assets less the current liabilities. When the value of the current assets exceed the current liabilities this is known as positive working capital where current assets are funded partly from the current liabilities such as Accounts Payable (Creditors) and bank over drafts and also from long term sources of funds such as bank loans or equity. The term negative working capital arises when current liabilities exceed current assets.

Variable costs

A variable cost varies in direct proportion to the level of business activity. Thus, where the level of business increases by 10%, variable costs can be expected to rise by approximately 10%. Examples of variable costs include cost of casual labor, guest supplies, travel agents commission, laundry in a hotel, and beverage cost of sales and the cost of raw material such as food in a restaurant. If variable costs are linear, then the cost per unit is independent of the volume (remains constant) and there are no economies or diseconomies of scale effects.

Unsystematic risk

Unsystematic risk is the stock volatility caused by firm specific events such as lawsuits and labor disputes. This type of volatility or risk can be diversified away because it is independent of economic, political, and other factors that affect all securities in a systematic manner (Van Horne & Wachowicz, 2001). For hospitality investors, firm specific volatility or unsystematic risk can be eliminated by holding a well diversified port folio that includes both hospitality and non hospitality stocks.

Uniform system of account income statement

Income statements for hotels and restaurants are organized above all to provide responsibility accounting information to users, although restaurant operating statements provide a lesser degree of detail.

The hotel income statement communicates the dual retail real estate nature of lodging. In its most useful format, entitled ‘Summary Statement of Income’ (Uniform System of Accounts for the Lodging Industry [1996], 33), the income statement is readily divided into three panels or levels.

Uniform system of accounts

Uniform systems of accounts are standardized charts of accounts developed to reflect the specific operating and financial characteristics of individual hospitality industry segments. The USALI is by far the most widespread in its use, in part because it brings order to the complexity inherent in the numerous revenue and cost centers comprising a multifaceted lodging property, but the Uniform System of Accounts for Restaurants (USAR) and the Uniform System of Accounts for Clubs (USAC) are also widely used.