Accounting for Management in Hospitality
Industries
LO:01
• To appraise the importance of financial statements along with the key performance indicators for
hospitality industry
Contents
1.1 Introduction to Accounting and Management in Hospitality Industries
1.2 Introduction to financial statements in hospitality industries:
1.2.1 Understanding the purpose of income statement and balance sheet
1.2.2 Value of uniform system of accounts
1.2.3 Differentiate between direct, indirect and undistributed costs
1.2.4 Calculate ending inventory
1.3 Ratio Analysis
1.3.1 Analysis of credit card receivables
1.3.2 Explain each of the solvency ratios
1.3.3 Describe each of the profitability ratios.
1.3.4 Explain each of the activity ratios
1.3.5 Importance of inventory turnover ratios.
1.3.6 Five important food and beverage operating ratios
1.3.7 List and describe at least five rooms operating ratios.
1.3.8 Explain the meaning of gross margin.
1.1 Introduction to Accounting and
Management in Hospitality Industries
Accounting refers to systematic recording, classifying and summarizing of
financial transactions and interpreting the results thereof. Thus, accounting
encompasses financial reporting.
 Accounting starts with recording and ends with presentation of financial information in
a manner that facilitates informed judgments and decisions by users.
 Accounting in hospitality industry is essential
(a) to keep track of the transactions.
(b) prevent mismanagement and inefficient tracking.
For example : a hotel- accommodating guests, paying the salaries of the hotel
employees, reporting the total sales, recording transactions, analyzing the profits etc.
require a specialized accounting management.
Hospitality accounting includes the
following:
• Preparing a precise collection of month end accounts
• Budget preparation
• Business planning
• Creating financial statements and balance sheets
• Payroll
1.2 Introduction to financial statements in
hospitality industries:
• Financial Statements: Objective

To provide information about the financial position, performance
and cash flows of an enterprise that is useful to a wide range of
users in making economic decisions.

Financial statements do not necessarily provide non-financial
information.
1.2 Introduction to financial statements in
hospitality industries:
• Corporate Financial Statements
• What are the corporate financial statements?

Balance Sheet
Shows the financial position (position of assets, liabilities and equity) as on
the reporting date.

Income Statement
Shows the financial results (profit or loss) for an accounting period.
1.2.1 Understanding the purpose of income
statement and balance sheet
• financial health, giving insight
into its performance,
operations, and cash flow.
• Financial statements are
essential since they provide
information about a
company's revenue, expenses,
profitability, and debt.
Balance Sheet
• The balance sheet shows a company's
assets (what they own), liabilities (what
they owe), and stockholders' equity (or
ownership) at a given moment.
Example of a Balance Sheet
• ExxonMobil
Corporation's (XOM) balance sheet for
fiscal-year 2021, reported as of Dec. 31,
2021.
Total assets were $338.9 billion.
Total liabilities were $163.2 billion.
Total equity was $175.7 billion.
Total liabilities and equity were $338.9
billion, which equals the total assets for
the period.
Income Statement
• Reports the revenue generated from sales, the
operating expenses involved in creating that
revenue as well as other costs, such as taxes
and interest expense on any debt on the
balance sheet.
• Net income is revenue minus all of the costs of
doing business
• Revenue : defined as an inflow of assets
received in exchange for goods or services
provided. Eg. renting guest rooms, while in a
restaurant, revenue is from the sale of food
and beverages, catering, entertainment,
casinos, space rentals, vending machines, and
gift shop operations, located on or
immediately adjacent to the property
• Expenses are defined as an outflow of assets
consumed to generate revenue. The accrual
method requires that expenses be recorded
when incurred, not necessarily when payment
is made.
1.2.2 Value of uniform system of accounts
• A situation in which a number
of hotels/restaurants may use
the same accounting (costing
and sales) principal in such a
way as to produce sales,
valuable conclusions can be
drawn and one hotel can be
compared to others.
• classifying, organizing, and
presenting financial
information so that uniformity
prevailed and comparison of
financial data among hotels
is possible.
information collected on a regional
or national basis from similar
organizations within the
hospitality industry.
organization comparison of its
results with the averages.
Analysis of the causes and taking
corrective actions
1.2.3 Differentiate between direct, indirect
and undistributed costs
• Departmental income statements report operating costs that are classified
as direct costs, that are directly traceable to the department.
• Indirect costs are costs that are not easily traceable to a specific
department, and are usually undistributed costs.
• Undistributed costs are normally incurred to support the overall facility
and will normally appear on a summary income statement. All costs shown
in a generic income statement will be shown as cost of sales, and named
expenses.
1.2.4 Calculate ending inventory
Methods of Inventory Valuation
1.2.4.1 First-in, first-out :
Commonly referred to as FIFO, the first-in, first-out
inventory control procedure works as the name
implies—the first items received are assumed to be the
first items sold. Simply put, the oldest items are
assumed to be sold first, leaving the newest items in
inventory.
1.2.4.2 Last-in, firstout(LIFO)
• Commonly referred to as LIFO
works as the name implies—the
newest or last items received are
assumed to be the first items sold,
leaving the oldest items in
inventory.
• The newest items are assumed to
be sold first. LIFO uses the same
concept as FIFO.
• The value of ending inventory, cost
of sales, and purchases can be
verified as follows:
1.3 Ratio Analysis
1.3.1 Analysis of credit card receivables
1.3.2 Explain each of the solvency ratios
1.3.3 Describe each of the profitability ratios.
1.3.4 Explain each of the activity ratios
1.3.5 Importance of inventory turnover ratios.
1.3.6 Five important food and beverage
operating ratios
1.3.7 List and describe at least five
rooms operating ratios.
1.3.8 Explain the meaning of gross margin.
References:
• https://www.investopedia.com/ask/answers/032615/why-doshareholders-need-financial
• https://www.investopedia.com/terms/f/financial-statements.asp
• https://hmhub.in/uniform-system-accounts-hotels/