What is Hotel Accounting & why is it Important?

While there are various kinds of obstacles for hotel accountants, we’re going to stick with some of the biggest hurdles we see as an AP software vendor for hotels. This is a great way to determine the hotel’s financial ins and outs, making sure each department isn’t spending too much money. Any partners or owners of any given hotel look for financial statements at the beginning of each month.

He has been an auditor of international companies and a tax strategist for real estate investors. He now writes articles on personal and corporate finance, accounting and tax matters, and entrepreneurship. As a result, accounting software is essential for tracking your hotel’s activities efficiently. However, while generic tools are effective for many small businesses, they may not meet the complex requirements of many hotels. Unfortunately, hotels need to account for these labor costs accurately and timely so their managers can staff effectively.

Separate Personal and Business Accounts

Rental property income can come in many forms, the most common being rent payments and prepaid or prorated rent payments. Income can also come in the form of fees, such as late rent fees, termination fees, pet fees, or appliance rental fees. Finally, a security deposit can be considered income, but only if all or part of it is being used to repair for damages caused by the tenant.

Bookkeeping is the recording of financial transactions for individuals or businesses. These records are what entrepreneurs can use to analyze the financial performance of their business, otherwise known as accounting. Even if you own only one property, you should open a separate business checking and savings account for your rental business.

How Is Hotel Accounting Different?

The more your business grows, the more likely you’ll need advanced industry solutions. For example, if you’re running a group of hotels, you’ll need a property management system that can handle all of your locations from a single dashboard. Another reason accounting can be more challenging for hotels than other businesses is that there’s a greater need for managerial accounting processes in the hospitality industry. The above 5 common (but major) problems in hotel accounting can end up costing countless manual hours, data errors, and ultimately — profits lost.

• They often have their own unique costs, and running them may require accounting for them separately.
• Or if you get invoices or mortgage statements in your email, either get them sent directly to your rental property email address, or forward them there.
• Let’s take a look at a few scenarios of how you would journal entries for inventory transactions.
• Larger organizations use accrual accounting to provide a better picture of income and expenses over periods of time.
• One month a disaster could happen, causing occupancy to rise because of the unforeseen circumstance.

The software then marks transactions to a ‘cleared’ status which confirms that the financial institution has processed the transaction. If you’re working with a linen service provider, make sure you’re getting what you’re paying for. Make sure you are optimizing your linen management budget and not paying for anything you don’t need.

Rental Property Accounting Basics

But the seasoned investor, landlord, and property manager can tell you that there are a few more areas to pay attention to when it comes to good bookkeeping and accounting. Relying on the manual methods may not only be erroneous but also cause inaccuracy during monthly balance sheet preparation. Here, any best hotel accounting software that acquired standard reporting structure hotel accounting will help, cause zero or minimal errors. Additionally tracking systems can determine the number of times that linen has been washed in an effort to determine its life expectancy and when it needs to be replaced. Tulman explained that with the average cost of high-end linen being around $20 per item, hotels are focusing on the overall replacement cost and inventory levels.

• Because these reconciliations need to happen nightly, you don’t want to rely on one accounting team member to complete them.
• So if I go to Home Depot for both personal items and rental property items, I check out twice.
• Whichever vendors a hotel has, it’s crucial they follow company culture, standard operating procedures, and hotel guidelines.
• Linen is typically stored in the department’s main linen room, in distribution rooms near the laundry, and also in floor linen closets for easy access by room attendants.

Inventory tracking can provide you with data on how much inventory you have on-hand, the status of your inventory (damaged or backordered) and can help deter theft. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Under the periodic inventory system, there may also be an income statement account with the title Inventory Change or with the title (Increase) Decrease in Inventory. This account is presented as an adjustment to purchases in determining the company’s cost of goods sold. The cash method involves recognizing revenues when you receive payments and deducting expenses when you pay them.

Most franchise hotels make it mandatory to stay with certain vendors to get the “branded” items, making the selection of vendors slim. Additionally, having to track down a specific department’s management is difficult and time-consuming, which can result in the late payment of an invoice. Having to enter invoices is a time-consuming task because each relevant department must approve each invoice to ensure that the invoice is correct and the right amounts were received. Someone should be able to ask the accountant why a particular expense may be higher than anticipated, and the accountant should have the answer at hand. The best way to create a budget for a hotel is to stick with specific percentages of the revenue for expenses and try to stay within that range — rather than sticking with concrete numbers.

This form will keep you compliant with IRS standards, as well as give you a formal place to report your income and expenses for the year. Consulting specialized professionals in areas outside your expertise is the only surefire way to safeguard your business. It is strongly encouraged for business owners to go digital for all things accounting and bookkeeping. If you are a property manager, it is vital that you have a separate bank account for your business and are familiar with how to handle trust accounts. Commingling funds is illegal and you must keep your owners’ assets separate from your own.

An effective method for controlling linen is maintaining floor pars for all floor linen closets. This means having a set number of linens (towels, sheets, etc.) that need to be stocked in each closet at all times. By having this set number, it will be easier to keep track of what needs to be replenished and when. There are a few things you can do to ensure that your linen closet is always stocked and ready for business. The completed master inventory control chart should be submitted along with the linen discard record to the hotel’s general manager.

Hotel financial auditing should follow GAAP principles — and it’s a good practice to have quarterly audits to ensure the hotel is always compliant. Having to communicate with each department and letting them know where they stand with expenses is often challenging and time-consuming for multiple reasons. There are many different payroll processing software, and the hotels get to choose which program they’ll process their payroll with. They can be used for financial models to help executives make future decisions and projections. Moreover, expenses are often shared or split between departments or properties. At the end of the night audit, the audit circulates an electronic or paper routing pack that must get approval from all department heads and the General Manager.

Complex Payroll Costs

Golder Hospitality saved $24,000/year by switching to Plate IQ — all while removing GMs from the AP process and processing invoices more efficiently. And like previously mentioned, some hotels have more than one operating system because they’re not using an OS that can do it all. When data for invoices are entered manually, there’s a lot of room for error. Certain items — like hygiene products, laundry detergent, and cleaning supplies — can run out quicker than expected. Anyone invested in the hotel will want to see ASAP how the hotel did for the month, especially because the industry can be unpredictable and constantly changes. Hotels tend to have vendors for alcohol, food & beverage, transportation, guests’ supplies, and more.

• Not only does a hotel’s occupancy vary by time of year, but the daily rate also fluctuates.
• Use the following best practice tips to streamline and optimize your linen inventory management.
• Income can also come in the form of fees, such as late rent fees, termination fees, pet fees, or appliance rental fees.
• Reconciliation simply means agreement; meaning do your bookkeeping ledgers agree with what happened in real life; aka your bank statement.
• Because hotel accounting involves a more complex set of practices than typical accounting, accounting personnel must go through training that differs from traditional training.
• Personal Capital helps me keep track of my net worth without having to worry about logging into 37 different accounts (ok maybe a slight exaggeration, but not much) to add up all my balances.