1. Explain how assets, liability and owner’s equity affect the accounting equation and how these items are presented on a balance sheet. Then explain how debits and credits affect these accounts.
Assets consist of what a business owns, liabilities are what the business owes to others, and owner’s equity is the difference between assets and liabilities. The accounting equation is affected by each of these three different items. The owner’s equity and the liabilities equal to the total amount of assets for the business itself. The balance sheet should consist of a left and a right side, meaning that the owner’s equity and the liabilities should equal out to the total assets of the business. When an item is debited from the account, it is subtracted from the assets of the business; while when a credit is added, it will be added to the negative amount of the business’s liabilities, working to decrease that total number. The assets are considered to be in the black, while the liabilities are considered to be in the red, as it is a negative amount. This may be seen in the below sample table.
Each ledger will look different depending upon the different type of account being reviewed. For example, a guest account will start with a zero balance and should end with a zero balance. The credits to the account would be on the left hand side and the debits would be on the right, with the right being subtracted from the left and the total amount of the account ending up at zero. The total amount paid to the guest account; however, would become the assets to the hotel, while any unpaid or outstanding balances to the account would fall into the liabilities for the hotel itself.
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2. Discuss the differences in a city ledger and guest leger, house account and master account. How receivables would be affected?
The city ledger, also known as a house ledger, is the method utilized by a hotel’s accounting department that handles all non-guest related transactions. This may consist of renovations, food purchases, and so on. The city ledger is usually divided into four parts, one for individuals or businesses that utilize the hotel as a place to hold meetings or other events, one for traveling executives done through the company for which those individuals work, one as a credit card holding account, and one for those who fail to settle their bills when checking out of the hotel, often turned over for collections. The guest ledger is for the typical guest not associated with a company who simply opts to utilize the hotel. A master account is an account assigned to more than one person or room, often utilized for guest groups. A house account, on the other hand, is an account assigned to the hotel itself; it may consist of non-guest accounts, or employee accounts, providing accounts assigned for non-guest businesses or other agencies with hotel charge privileges. Accounts receivable is affected by the guest ledger, the city ledger and a contra-asset account, if present, with the typical phrasing of allowances for doubtful accounts which is utilized for the purposes of uncollectable receivables or uncollectable accounts. The credits and debits that are incurred by both guests and future guests (those who purchase vouchers or gift certificates) of the hotel are all maintained under back office accounts receivable, or monies owed to the hotel.
Once the guest has received all of the goods and services purchased from the hotel and their stay is completed, the financial record would then be transferred to the master accounts receivable maintained by the hotel. Every transaction taken will work to affect the accounts receivable account in some way, shape, or form. Each of these different types of transactions determine which portion of the accounts receivable must be modified; for example, if a guest wishes to pay for their stay with Visa, the amount, once the account is closed in full, would be transferred to the Visa accounts receivable account. In this manner all the money flows from one account to the next, with each account working to maintain the status quo, ideally staying within the black at all times.
3. Explain how routing, paid out slips, petty cash slips, and charge/credit slips affect guest accounting and the audit trail.
The routing of the monies, based on the method of payment, the paid out slips, indicating what monies have been paid out by the hotel, the petty cash slips, indicating that which is coming into petty cash or being spent from petty cash, and the charge and credit slips for guests and hotel spending all affect guest accounting by creating their own entries showing what has been paid out, what has been received, and what may or may not be owed and by whom. The routing of the different accounts, transferring the monies from one area to the next as different accounts are closed and based on the payment methods or the debits present will serve to create a trail that, if done correctly, may be used for audit purposes, tracking each different transaction from its start to its finish, or vice versa. The paid out slips allow the auditor to determine what monies have been paid out from which accounts and the reasoning for doing so. The petty cash slips allow for the notification of monies removed or added to petty cash, indicating from whence they came or to where they are going. The charge and credit slips work in a similar manner.
Each of these different items works to make up the audit trail, allowing for any discrepancies to be traced back to their source by, literally, following the paper. Each slip of paper indicates a specific transaction, and any discrepancies within those transactions may be found, identified, and corrected by working to follow each slip of paper back to its start in order to determine where the error lies. In this manner, each slip works to create a trail back to the start, showing what has been done when, and by whom. The audit trail is the method that may be used to work to provide the balancing of the budget, providing a method for each of the different accounts in each of the different locations to be appropriately matched and, if all has been done right, zeroed out appropriately.
4. Discuss how posting, automatic posting, accounting transfer, and correction entry affect the guest account.
The guest account is the record of financial transactions that have been completed between the guest and the hotel. The guest account is created when the guest checks in and is closed when the guest checks out, in typical circumstances. Posting, automatic posting, accounting transfers, and correction entries all may affect the guest account in different ways. The initial outstanding balance when the guest account is first opened is set to zero. Once the guest accepts the room, they have a balance to be paid; posting funds to this account will work to zero out that balance, taking the account back to its original standing. If the account is posted to automatically, this may either be in the form of a charge to the room by the guest or in the form of a payment made by the guest, depending on the manner and method of payment. This will work to place the account in the negative, the positive, or zero it out, depending on the different types of postings that may be made. If the account is transferred, this may cause the balance to remain, but under a different type of account, such as if there is not a balance paid in full but the guest has left, causing the account to need to be moved over for collections and zeroing out the guest account at the same time. If the account needs a correction made, such as if a mistake was made, or a credit needed to be offered, this will cause a change in the guest account as well, either providing a bonus to the guest, or subtracting a charge incorrectly made, and so on.
In essence, any money paid by the guest to the hotel should be recorded in the debit column of the guest account, as this is money that the guest owes to the hotel. Any money received from the guest is posted in the credit column, as this is money paid by the guest toward the settling of the account. In this manner, the two columns should work to cancel themselves out, only resulting in money credited to the hotel, with no monies paid out by the hotel. Any corrections made to the guest account as a result of error would be posted in the credit column, resulting in less owed by the guest and a loss of money overall for the hotel, though such a loss could result in a return trip from the customer, ultimately netting the hotel more money overall.
Hotel Financial Assignment: Part 2
1. Ms. Smith makes a long distance charge of $5.68.
This transaction would be debit to the guest account for Ms. Smith, requiring an additional payment in the form of a credit to her guest account upon checkout.
2. Dr. Jones charges a $26 lounge bill to her guest room.
This transaction would be credited to the city ledger and debited from the guest ledger until such a time as Dr. Jones pays her bill.
3. Club 5 Star has $1250 in banquet charges for the day.
This transaction would be debited from the city ledger until such a time as Club 5 Star pays their bill for the day.
4. Ms. Sauder pays for her account by Visa and checks out ($345).
This transaction would be credited to the guest account, zeroing out the balance and it would be credited to the guest ledger as an asset, as the stay has been completed and the guest account has been closed.
5. Mr. Williams is checking out after his three day stay. He discovers the nightly charge is $25 more than the rate quoted and confirmed one week early by the CRO. The FDA who checked him in did not have the guest initial the rate. He will pay by American Express and his bill is $675.
The guest account will need an error correction, resolving the error with the room rate total, identifying the credit for the account as an error in the amount of $25 per night, totaling a credit of $75. The next transaction would occur in the amount of a $600 credit paid to the account by Mr. Williams on his credit card, closing out the guest account. This would then be credited to the guest ledger in the amount of $600 as the guest account has been closed.
6. Ms. Mayor purchases a $250 gift certificate with cash.
This transaction would be credited to the unearned revenue account as a voucher to be used by either Ms. Mayor at a future date, or by the person of her choosing if she opts to give it to someone else.
7. Mr. Russell mails in an advance deposit of $100 for his July reservation three months from now.
The transaction would be to debit our asset account cash and credit the unearned revenue account for advance deposits under Mr. Russell.
8. Ms. Knoop is checking out of the hotel when she notices a $15 charge that belongs to Ms. Hammis. The error is corrected and she pays $50 cash for incidentals and $260 on MasterCard.
The transaction would need to occur in multiple steps. First, the accidental charge would need to be credited to Ms. Knoop’s guest account as an error. Ms. Hammis’ guest account would need to be debited $15. Once this is completed Ms. Knoop’s guest account would need to be credited $310, closing out the account, with the amount being credited to the guest ledger of the hotel.
9. Ms. Jonas direct bills TLC in the amount of $456 for her stay.
This transaction would be credited to the guest account and debited from the city account until TLC pays their bill with the hotel.
10. Newlywed Mr. and Mrs. Arndt check into the hotel with a $250 gift certificate.
This transaction would debit the unearned revenue account for the total cost of the gift certificate and credited to the asset account of the hotel.
11. Club 5 Star has reviewed all charges for their meeting and wants to be billed. They accepted all charges as posted.
This transaction would be credited to the city ledger in the total amount paid by Club 5 Star to the hotel.
