Front Office Accounting

I- Front Office Accounting System:

The front office accounting system is responsible for:
a) Creating and maintaining an accurate accounting record for each guest or non-guest in
the hotel
b) Tracking all financial transactions throughout the guest cycle
c) Ensuring internal control over cash and non-cash transactions
d) Recording settlement for all goods & services provided
The front office accounting system shall be customized and tailored to track each hotels
needs. Therefore, no two hotels have exactly the same front office accounting systems.

II- General Concepts of Front Office Accounting:

Below is a brief description of some accounting terminologies used frequently in the front
office department:

1- Accounts:
An Account is a form on which financial data are accumulated, summarized and brought to
its ending balance. Moreover, all accounts shall have two entries referred to as Debit (dr) (or
charges) versus Credit (cr) (or payments).
The most widely used representation of accounts is the T-Account, which summarizes debit
entries on the left-hand side and credit entries on the right-hand side.
Hotels operating under the manual system get use of journal forms to account for different
front office accounting transactions.
As far as front office accounting is concerned, there are two major types of accounts widely
used:
a) Guest accounts describe all charges and payments of guests who are already registered at
the hotel.
b) Non-guest (house or city) accounts: describe all charges and payments of non-guests. To
illustrate, a potential guest sending a certain deposit to guarantee a reservation is a non-guest.
Moreover, charges and payments of guests who checkout with any method of payment other
than cash, shall be opened a non-guest account. Lastly, visitors and employees with charge
privileges shall be opened non-guest accounts.

2- Folios:
A folio is a statement of all transactions (i.e. debits & credits) affecting the balance of a
single account. At Checkout, any guest folio should be balanced to 0 through full cash
payment, credit card transfer, personal check transfer, special program transfer, and direct
billing transfer
The correct way of maintaining folios starts with proper posting, which is the process of
recording transactions on a folio (i.e. proper folio, proper location and proper amount)
Under the manual, semi automated and fully automated systems, folios are called hand-
written folios, machine-posted folios, and computer-based electronic folios respectively.
Moreover, all folios shall have a unique serial number for internal control and storing
purposes.
In the front office department, there are four common types of folios used:
a) Guest folios: accounts assigned to individual persons or guestrooms
b) Master Folios: accounts assigned to more than one person or guest room; usually
reserved for guest groups
c) Non-Guest (or semi-permanent) folios: accounts assigned to non-guest businesses or
agencies with hotel charge purchase privileges
d) Employee Folios: accounts assigned to employees with charge purchase privileges
Apart from the above mentioned common folios, front office department get use of some
other types of folios such as A-type, B-type, C-type, D-type, and E-type folios.

3- Vouchers:
Vouchers depict the details of the transaction information gathered at the source of
transaction and is, hence, a supporting documents used only for internal control purposes.
Below are some of the commonly used vouchers in the hospitality industry:
a) Cash vouchers
b) Credit card vouchers
c) Charge vouchers
d) Transfer vouchers
e) Paid-out vouchers
f) Correction vouchers
g) Allowance vouchers

4- Points of sale [i.e. POS]:

A point of sale is the location at which goods or services are purchased; sometimes called a
revenue center. Moreover, due to technology breakthrough, some non-traditional point of
sales emerged such as in-room movie & in-room vending service systems.
Since charges are usually incurred at remote points of sale, and guest and non-guest folios
are maintained at the front office department, posting of different guest and non-guest
charges shall be performed. An electronic transfer ensures this, under the fully automated
system. Under manual and semi automated systems posting shall be done by a physical
submission of different vouchers to the front office department.
When posting charges, the following items shall be considered:
a) Amount of the charge
b) Name of the point of sales outlet
c) Room number & name of the guest
d) Brief description of the charge
e) Guest signature & employee identification

5- Ledgers:
The front office ledger is the collection of front office account folios, which usually include
guest ledgers (i.e. charges and payments of all guests staying at the hotel).
At any moment in time, the account receivable includes the addition of guest ledger and
non-guest ledger (or city ledger) which refers to charges and payments of all non-guests.

III- Creation and Maintenance of Guest Accounts:

All guest folios shall be created during the pre-arrival or arrival stage of the guest cycle.
Moreover, folios might be either placed in front desk folio tray [i.e. posting tray, folio well,
or bucket] or stored as an electronic guest folios in fully automated systems.
As far as walk-ins are concerned, all their guest folios are created at the arrival stage!

1- Record keeping systems:

a) Non- automated systems: Ensured through a series of columns listing individual debit
and credit entries accumulated during the occupancy stage after which and establishment of
an ending outstanding balance is needed.
b) Semi-automated systems: Under this very system, all guest transactions should be
printed sequentially on a machine-posted folio. Later, the front office clerk needs to come up
with the folio outstanding balance. It is extremely important here to mention that, under this
very system, each accounts previous balance shall be re-entered each time a transaction is
posted to the folio.
c) Fully-automated systems: All guest charges are automatically posted to an electronic
folio

2- Guest charge privileges:

Potential guests who would like to have guest charge privileges shall present an imprint of
an acceptable credit card or direct billing authorization at registration. Failing to do so, guests
would have to pay, in full, all their charges through cash, hence called Paid-in-Advance [PIA]
guests and have, hence, have no post status.

3- Credit monitoring:
In order to monitor and control charge privileges, the front office clerk should check
whether the total net purchases are less than the minimum of floor Limit (i.e.: credit card
company's limit) and house limit (i.e. hotel's limit). At least, each day, lists of guests with
high risk or high balance accounts shall be communicated to all point of sale outlets. This is
vital since, failing to do so, will let point of sales outlets continue giving charge privileges to
a point that eventually the credit card company refuses to pay the amount of money
exceeding its limit. This will cause very serious financial losses to the hotel.

4- Account maintenance:
Whatsoever system hotels operate, maintenance of guest and non-guest accounts is ensured
by the following formula:

Net outstanding balance = Previous balance + Debits - Credits

NOB = PB + DR - CR
IV- Tracking Transactions:
Under the manual and semi-automated systems, tracking transactions is ensured through an
intensive use of vouchers. On the other hand, Under fully automated systems, tracking
transactions is ensured through on-line electronic transfer of transactional information from
remote points of sale to the front office main frame terminal.
In accounting, a transaction is an exchange of goods and services for cash or a promise to
pay. Under this very assumption, "nothing happens until a transaction occurs". This means
that front office clerks shall first of all have a transaction, its supporting documents (i.e.
vouchers, invoices) to be able later to debit or credit certain accounts!
In hotels transactions might have the form of:
a) Cash payment
b) Charge purchase
c) Account correction
d) Account allowance
e) Current transfer
f) Cash Advance

1- Cash payment:
In this very transaction, front office clerks shall post cash payment as a credit in the guest
folio. Moreover, cash vouchers shall be used as a transaction-supporting document.

2- Charge purchase:
Charge purchases represent deferred payment transactions that increase the outstanding
balance of a folio account. In this transaction type, front office clerks shall use charge
vouchers as a transaction-supporting document.

3- Account correction:
Account correction is used to resolve a posting error in a folio detected at the day the error
is made (i.e. before the closing of the business day). In this transaction, front office clerks
shall use correction vouchers as a transaction-supporting document.

4- Account allowance:
Account allowances occur because of two reasons:
a) Either as compensation of poor service, or as rebates for coupon discounts. That way,
guest outstanding balance decreases.
b) As to correct a posting error detected after the closing of the business day.
For both reasons, front office clerks shall prepare an allowance voucher as a transaction
supporting document.
V- Internal Control:
In the hotel industry, the main purpose of internal control is to track transaction
documentation, verify account entries and account balances, and to identify vulnerabilities in
the accounting system. The keyword to internal control is auditing, which is the process of
verifying front office accounting records for accuracy and completeness.

Below are some forms that are of extreme importance to internally control, one of the most
vital assets in the hotel (i.e. cash):
1- Front office cash sheet:
The front office cash sheet lists each cash receipt or disbursement in order to reconcile cash
on hand at the end of a cashier's shift with the documented transaction that occurred during
the same shift.
2- Cash, house banks or petty cash:
Petty cash is the amount of cash assigned to a cashier so that he/she can handle the various
transactions that occur in a particular work shift.
At the beginning of each shift, all cashiers must sign their cash banks and at the end of the
shift, shall deposit all cash, checks, and other negotiable instruments in the general cashier's
safe deposit box. Moreover, at the end of each shift, cashiers should watch out for cash
discrepancies (i.e. any difference between front office cash sheet and the actual amounts in
their cash drawers). Cash discrepancies might have the form of cash overages, shortages, or
due backs
Lastly, cashiers might come up with the net cash receipt, which is:

Amount of all cash, checks, and other negotiable instruments in cashiers drawer amount of
the initial cash bank + all paid outs

3- Audit control:
Along with the fact that hotels might employ internal control auditors, at least once in a
year, (especially for hotels traded in the stock market) to get use of external certified public
accountants responsible for approving hotel's accounts.

VI- Settlement of Accounts:

One of the responsibilities of front office clerks is to settle guest accounts, which means the
eventual collection of payment for outstanding account balances (i.e.: bringing account
balances to 0]. This is usually ensured either by full cash payment, transfer to an approved
credit card, personal check, special program, or direct billing account

What is an account ?
An account may be imagined as a bin or container in which the results of various
business transactions are stored. The increases and decreases in an account are
calculated and the resulting monetary amount is called as account balance. Any
financial transaction that occurs in the hotel may affect several accounts. Front office
accounts are recordkeeping devices to store information about guest and non-guest
financial transactions.
The simplest form of writing an account is the T form
{as it resembles the letter T}
Account name
Charges Payments
Computers have replaced the use of these T accounts. However the principle behind
usage of accounts remains same.
Types of accounts at the front desk:
1} Guest accounts:
A guest account is a record of financial transactions which occur between a guest and the
hotel. Guest accounts are created when guests guarantee their reservations or when they
register at the front desk. During occupancy, the front office is responsible for and records al
transactions affecting the balance of a guest account. The front office usually seeks payment
for any outstanding guest account balance during the settlement stage of the guest cycle.
Certain circumstances may require the guest to make a partial or full payment at other times
during the guest cycle. For example, if the front office is to enforce the hotel's house limit,
guests who exceed that limit may be asked to settle part or all of the outstanding balance.
When there is a house limit, account settlement action is initiated when the account balance
exceeds a predetermined limit, not at the time of check-out.

2} Non-guest accounts:
A hotel may extend in-house charge privileges to local businesses or agencies as a means of
promotion, or to groups sponsoring meetings at the hotel. The front office
creates non-guest accounts to track these transactions. These accounts may also be
called house accounts or city accounts. Non-guest accounts are also created when a
former guest fails to settle his or her account at the time of departure. When the
guest's status changes to non-guest, the responsibility for account settlement shifts
from the front office to the back office {accounting division}. Unlike guest accounts, which
are complied daily, non-guest accounts are normally billed on a monthly basis by the hotel's
accounting division
Voucher:
A voucher details a single transaction to be posted to a front office account. This
document lists detailed transaction information gathered at the source of the
transaction. The voucher is then sent to the front office for posting onto the guest folio.
Usually any service or goods brought on credit by the guest has to be supported by a voucher.
Types of voucher:
Charge vouchers such as Restaurant/ Bar check
Cask advance/Paid out voucher
Allowance vouchers and Correction vouchers
Cash Vouchers

BASIC PRINCIPLES OF ACCOUNTING:

Any amount paid by the guest to the hotel is posted in the debit column. A debit{dr.}
therefore is moneys owed by the guest to the hotel
Any money received from the guest is posted in the credit column. A credit therefore is any
money paid by the guest towards settling his/her bill including advance deposits.
The balance column reflects a progressive difference between debits and credits
calculated on basis of the formula
 previous balance + debits credits = net outstanding balance
These principles are applicable to the guest folio/bill in which all cash and
credit transactions are recorded for each resident guest which increase or decrease the balance
of a single account. It is also called as guest account card. In some hotels it is also called as
Guest weekly bill.
The debit transactions are recorded to the left of the folio while the credit transactions are
recorded to the right. The outstanding balance is calculated by subtracting the right from the
left.
In the manual system the folios are maintained in hard copies in folio racks
at the cashiers cabin or back office. In an automated system the folio remains in the
computer and a hard copy is printed out only at the time of guest check out. Each entry into
the folio is called a posting . Each posting is recorded sequentially in the folio in the order of
transactions on a given date.
When an account is created, it is assigned a folio with a starting balance
of zero.
A debit entry will increase the guests outstanding balance while a credit entry will decrease
the outstanding balance.
At departure the outstanding balance has to be returned to zero by cash payment or by
transfer to an approved credit card or to a direct billing account
Guest folio format :

POINTS TO REMEMBER WITH REGARD TO A FOLIO:

1. A folio is raised as soon as the guest checks in.
2. The initial outstanding balance {when it is opened} of the folio is zero
3. Details on a folio: Guest name, Room Number, date of arrival, date of departure,
Room rate, address, billing instructions. Each folio has a serial no. which will help
keep a control on folios for the purpose of audit.
4. The cashier is responsible for the guest folio till the guest departs.
Types of folios used in hotels:
Individual guest account card/folio: To record transactions made by an individual
or independent guest with the hotel. Also called as guest folio
Group folio/master folio: One folio for the whole group and this folio is required to
record all transactions made by the group{which are part of the package of the
group}
Semi-Permanent or non-guest folios: In this folio the credit financial transactions
made by non-resident guests with the hotel are recorded. Also known as city
account card or non-resident guest account card.
Employee folio: All the financial transactions {if any} made by the employees are
recorded
Permanent/ companies/airlines folio: Separate folios are maintained for all
companies, agencies, organizations with whom the hotel has permanent billing
arrangements.
Split Folios: Split folios are those when two guests wish to have separate accounts
though they share the same room. Room charges will feature on one folio for
convenience, other charges would reflect individually in split folios.
Another case of split folios is when a company executive would like to
maintain two separate accounts one that is charged to his/her company while
the other is to record his/her personal expenses.

Ledgers used at the front desk

A front office ledger is a collection of front office account folios
There are two main types used at the front desk
1} Guest ledger {Transient ledger/front office ledger and room ledger}
Guest ledger is the total set of all account folios of guests registered in the hotel
{in-house guest} hence any debit entry to the guest folio will not only increase the
guests balance but will also increase the net outstanding balance of the guest
ledger.
2} City ledger {Non-Guest Ledger}
City ledger records all accounts that do not belong to resident guests. At the
time of check out if the resident guests outstanding balance is not brought to zero ,
the same is transferred from the guest ledger to the city ledger.
At the time of account transfer, the responsibility for account collection shifts
from the front office to the accounting division (back office).
Accounts which are included in city ledger:
Credit card payment accounts
Direct billing accounts {guests whose bill will be settled by the company}
Airlines
Travel agencies
Skippers account
Bad cheques account {Bounced cheques of guests}
Disputed bills account
Retention charges account from DNA guests

Account aging:
Most of the city ledger accounts are settled within 30 days of billing which is
generally satisfactory. However there will be some which will take longer than 30
days to collect . The hotel should establish methods for tracking past due
accounts which may be based on the date the charges were incurred. This
practice of scheduled billings is normally referred to as account aging. At large
properties the accounting division monitors account aging while at smaller
properties the night auditor may assume this role. An account age analysis sheet
identifies which account receivables are 30, 60, 90 or more days old. Accounts
lesser than 30 days old are considered current. The accounts over 30 days are
considered overdue and the ones above 90 days are delinquent The front office
should maintain a list of accounts over 90 days due. Guests asking for
reservation on an overdue account may be asked to pay cash or by a valid
credit card until the account is considered current