Unit 7: Front Office accounting

7.1. Introduction and its fundamentals

• The objective of a hotel is to provide facilities and
services for guests in return for money, to make a
profit.

• To ensure that all guest bills are properly

settled, hotels need to have

– an accurate and constantly updated record of all

guest financial transactions.
 Front office accounting is a system consists of
tasks performed during each stage of guest
cycle.
• Pre-arrival: type of reservation guarantee and
tracks pre-payments and advance deposit.
• Arrival : application of room rate and tax.
• Occupancy: tracks authorized guest purchases.
• Check-out: ensures payment for services and
goods.
 Financial transactions of non-guest account is
also handled by front office accounting.
Function
• Create and maintain accurate and current
records of all guest and non-guest transactions.

• Provide effective internal control by monitoring

credit given to guests and preventing
fraudulent staff practices.

• Provide management information on department

revenue.
• The front office accounting system, must be
able to integrate with the main accounting
system operated by the hotel’s accounts
department.

• The function of the accounts department is to

– monitor the financial operation of all areas of the

hotel, i.e. the running costs and earned revenue.
Accounts , folios, vouchers and ledger
• Account is a form on which financial data are
accumulated and summarized.
• Have two entry i.e. debit and credit
• Charges result an increase in account balance-
and entered on left side of a T account as debit.
• Most guest accounts have a debit balance,
because the guest is in debt to the hotel for the
services which they have had and had charge to
their account.
• Payments result a decrease in the account
balance- and entered on right side of a T
account as credit.

• Account balance = T account right total- T

account left total.

• In fully automated system charges and

payments may be listed on the same column
but the amount paid with –ve sign.
Description of Charges /debit Payments /credit Balance
transactions/account
1.
2.
3.
ABC hotel Address
Telephone
Fax
Name : Mr/s Gibson
Arrival date : 8/5/19
Departure date: 9/5/19
No. in party: 2
Room no. 1032
Rate: $150
Folio no.: 283833

Date Item Description Debit Credit

8/5/13 1 Cash 150
8/5/13 2 Room 150
8/5/13 3 ABC’s bar 10
8/5/13 4 Room service dinner 64
8/5/13 Balance 74
9/5/13 5 Room service breakfast 15

Amount to be settled by a guest 89

6 Cash 89
Balance 00
Type of accounts
1. Guest account
• Is a record of financial transactions between a
resident guest and the hotel.
• Created when a guest check-in.
• Some of the resident guests may have their
accommodation or other charges settled by their
company, while they settle incidentals themselves.
• In these situations, the resident guest has to have
two folios:
a. Master folio/account - settled by a company. A
copy of this account is sent to city/sales/ledger.
b. Folio/account for incidentals – settled by a guest.
2. Non-guest account
• Record financial transaction b/n the hotel and non-
resident guests.
E.g. - local business people using hotel facility and
service for entertainment/business meeting.
- walk-outs - waiting eventual payment/’bad debt’
- Guests who have sent prepayment to guarantee
their bookings, but not arrived or checked in.
3. Management account
• Are expense account/allowance given by a hotel to
the hotel manager.
• Used to entertain guests/potential clients.
Folio: is a statement of all transactions/debit and
credit/ affecting the balance of a single account.
• When account is created- it is assigned a folio
with a starting balance of zero.
• Then all transactions that increase/debit/ &
decrease/credit/will be recorded.
• At settlement a guest account should be
returned to zero by cash payment, by
transfer to an approved credit card, direct
billing.
Posting: is a process of recording transactions on
an account.
• A transaction is said posted if it is posted on a
proper account, proper location and new
balance has been determined.
Voucher: is a document detailing a transaction to
be posted at the front office.
• Used to communicate information from POS to
front office.
• POS describes the location at which goods and
services are purchased.
• In hotels it is any hotel department that collects
revenue for its goods and services is considered a
revenue center thus a point of sale.
• Automated POS system decrease
- number of times posting held
- number of posting error
- save time for posting
- after departure/late/charge
Ledger: a summary grouping of account/a
collection of front office account folio.
• Guest ledger – is a collection of guest account.
• City/non-guest/ ledger- is a set of non-guest
account.
[Link] and maintenance of accounts
• Account is created at the time of registration or
during reservation.
• Account number will be given.
• In non-automated accounting system pre-
numbered account /folio is used.
Charge privileges
A guest should have
1. An acceptable credit card
2. A direct billing authorization
• Thus a guest can make a charge purchases.

• Then transactions are communicated manually

by voucher/electronically from remote POS to
front office for posting.
Credit monitoring
• Is done to ensure as guest and non-guest
accounts are within acceptable credit limit.
• House limit: set by front office department/
for direct billing/
• Floor limit: by credit card company.
• High risk/high balance accounts: are
accounts approaching their credit limit.
Account maintenance
PB + Dr – Cr = NOB/ Net Outstanding Balance/
e.g. transactions to be given.
PB + DR –CR = NOB
e.g. a guest registered in July 27; the first debit a charge
purchase of $ 14.25 occurred that evening in the hotel’s
restaurant.

• Since the front office received no cash payment/credit,

the 1st net outstanding balance on the account is $ 14.75.

PB + DR – CR = NOB
$ 0.00 +$ 14.25 - $ 0.00 = $ 14.25
7.3. Handling transactions
1. Cash account
2. Charge purchase
3. Account correction
4. Account allowance
5. Account transfer
6. Cash advance/VPO/
Cash payment
• Made at front desk to reduce a guest’s
outstanding balance
• Posted as credits on guest and non-guest
account so decrease the balance of an
account.
• Cash voucher can be used to support this
transaction.
• Only cash payment transactions that takes
place at the front desk will create entries that
appear on front office account folio.
E.g using restaurant/buying newspaper at POSs
created, increased, settled and closed at the
POS.
Charge purchase
• Guests receive goods and services from the
hotel but do not pay for them at the time
they are provided.
• Charge purchase transaction/debit/ increase
outstanding balance.
• Supported by charge voucher/account
receivable voucher.
POS of the property and shops/POS/ not
owned/operated by the hotel
• Here voucher having 2 copies one to be sent to
f/o and the second one to stay with the
shopkeeper.
• The voucher should be signed by the guest.
• After payment the voucher will be sent to
accounting department for payment to
shopkeeper.
Account correction
• Resolve posting error on guest account.
• Made on the same day the error is made before
the night audit/the close of business/
• Increase or decrease outstanding balance of a
guest and non-guest account depending on the
error.
The problem may be
• On the amount posted
• Department
• Guest account
e.g. room rate
Account allowance
Involves two types of transactions
[Link] in a folio balance for purposes as
compensation for poor service/credit posting/.
[Link] a posting error detected after the close of
a business/night audit/

Account transfer
1. Involves two different accounts and tend to have
offsetting impacts on subsequent account
balances.
when a guest offers to pay a charge posted on
another guest’s account
• Transfer voucher supports this.
• Decrease /reduction/ in balance on the
originating account.
• Increase in balance on destination account.
2. Account transfer may occur when a departing
guest wants to settle his account by credit
card.
• Guest account to non-guest account
VPO/visitor paid out /
• Used in a situation where guests’ request
services the hotel does not provide so, the
hotel pay out money on behalf of the guest for
services.
• Entered to a guest account as debit e.g. theater
ticket, sightseeing tour , postage stamps etc.
• Supported by cash advance voucher/paid out
voucher.
In summary, there are two types of posting
• There are two basic types of transactions that
are posted to a guest account: debit entries
and credit entries.
The most common debit items include:
• Room charge
• Restaurant/coffee shop
• Telephone
• Laundry
• Use of hotel facilities e.g. health centers,
business centers and transportation.
Credit entries
• Prepayments
• Payments for part of the bill during stay
• Payment for final settlement
• Amendments to the bill
Front office accounting cycle
• The first important function of the front office
accounting system is:

• To maintain an accurate and up-to-date record of

all the financial transactions between a hotel and
a guest.

• Thus, all outstanding accounts are settled without

delay.
Front office accounting process can be divided
in to three main phases:

• Creation of accounts
• Maintenance of accounts
• Settlement of accounts
7.4. Internal control and account settlement

Internal control involves

•Tracking transactions documentation
•Verify account entries and balances
•Identifying vulnerability in the accounting
system

A primary set of front office accounting

control procedures involves the use of front
office cashier banks.
Cash bank is an amount of cash assigned to a
cashier. So that he/she can
• Handle the various transactions that occur
during a particular work shift.

– To make change when guests settle their account.

– To process paid-outs.

– To provide other cash – related service during the

shift.
• The bank limit- is the amount the bank should
have in it when it is issued at the beginning of the
shift.

• At the end of the shift, the cashier typically

separates out the amount of the initial bank, and

• Then places the remaining cash, checks, and

other negotiable items (e.g. paid out voucher)in a
specially designed front office cash envelope.
• Monetary differences between the money placed in the front
office cash envelope and the cashier’s net cash receipts should
be noted on the envelope as
– Overage,
– Shortage, and
– Due backs

• Net cash receipt – are the amount of cash, checks, and other
negotiable items in the cashier’s drawer, minus the amount of
initial cash bank, plus the paid-outs.

Net cash receipt = The amount in cashier’s drawer – cash bank

initial amount + Paid outs
• Overage – occurs when, after the initial bank is
removed, the total of cash, checks,
negotiable/certificates that have
– Cash value to a hotel/ and paid outs in the cash drawer is
greater than the net cash receipts.

• A shortage – occurs when the total of the contents

of the drawer is less than the net cash receipt.

• A due back – occurs when a cashier pays out more

than he/she receives.
– Or if there is no enough cash in the drawer to restore
the initial bank.
• A special kind of due back may occur when a
cashier accepts many checks and large bills /are
not useful for processing transactions/during a
shift.
Settlement of account
• It is a collection of payment for outstanding
account balance.

• Involves bringing an account balance to zero.

Settlement of account is done by
– Cash payment in full or
– Transfer to an approved credit billing /
– Transfer to credit card account/ city ledger
Methods of handling guest accounts
• To ensure that guest accounts are accurate and
current, all guest’s credit or charge information
must be promptly communicated to the front
office cashier for posting.
1. Manually /preparing bill by hand/
2. Mechanically
3. By computer
• In large modern hotels, computers are widely
used because they are accurate and fast in the
transfer of credit or charge information.

• Computers can be programmed to analyze a

hotel’s revenue in great detail.

• Produce reports for management in a very

short period of time.
Handling of guest accounts by computer
• If a hotel is using a computer system, a guest account will be created
when the guest details are entered in to the computer at check-in.

• Once a guest account is created, any subsequent debits or credits

may be posted directly to that account.

This can be done in a number of ways.

• Processor: some charges are posted by the computer
automatically.
E.g. the room charge /the room rate which is recorded in the
computer at check-in/.

• Room charge can be automatically added to a guest’s account each

night by the computer.
Verifying posting
• To reduce errors in guest accounts and prevent
fraudulent staff practices, posting of guest
transactions are usually verified or checked each day.

• This process is called auditing, and refers to the

process of checking the accuracy of the guest
accounts by balancing all departmental accounts.

• Auditing – the process of verifying front office

accounting records for accuracy and
completeness.
During the auditing process the following are usually
carried out:

1. Posted entries are verified.

• Posted entries to each guest account are checked to
ensure that they have been charged correctly.

E.g. if a guest has a telephone charge on their account:

• A corresponding amount should be listed for the room
number in the telephone revenue analysis.

• Any errors in posting should be corrected immediately.

2. Accounts are balanced
• All charges from different departments have to be
checked to ensure that they have been correctly
posted to guest’s accounts.

E.g. The total charges stated by the coffee shop

cashier must equal:

– the total coffee shop charges on all of the guest’s

accounts
3. Cash flow is checked
• This involves checking the cash and charges to a
guest’s account earned by each department.
• As recorded on the department’s cash box
– Against the amount of cash received by the front
office
• The main purpose of this is to prevent any
fraudulent practices among staff.

E.g. the bar till may show sales of drinks to be $

150 in cash and $220 in signed bills.
• Charges can also be transferred directly from
computer terminals in other departments.

E.g. a waiter can enter a guest’s breakfast charges

by means of a small computer terminal in the
coffee shop.

• The charge will be then transferred to the main

processor at the front office and posted directly on
the guest’s account.
• The front desk must therefore, have issued a cash
receipt for the $ 150 and have $220 posted on
guest counts against bar drinks.

4. Room status discrepancies are resolved

• The auditor will check whether there are rooms
which are listed as ‘vacant’ but still ‘occupied’
for which there is no bill.

• Any discrepancies that exist present possible

errors and must be dealt with quickly.
5. No-show reservations are verified
• The auditor will clear the reservation file daily.

• Any guaranteed reservations which did not arrive i.e.

no-show will have their accounts printed and an
account settlement will be requested.

• Before the introduction of computers, auditing used to

be done by a large team of night audit staff.

• Nowadays, most of the audit work is automatically

performed by computers, and so fewer night audit staff
are needed.
UNIT 6: CHECKOUT & ACCOUNT SETTLEMENT

• Part of the final stage of guest cycle,

• It is a very critical stage as any mistake here could turn
negative all the hard work & courtesies extended to a
guest during his/ her stay.
Front Office performs three important functions during this
process:-
a. It resolves outstanding guest account balances
Front Office accounting system maintains
• accurate guest folios,
• verifies and authorizes a method of settlement, and
• resolves discrepancies in account balances.
• Generally when guest is still in the hotel.

• Guests are required to specify their method of

settlement at the time of registration.

• This enables front office staff to verify or confirm

the guest’s credit card or direct billing information
before check-out and account settlement.

• This gives us enough time to do the necessary

verifications before guest checkout & saves time.
b. It updates room status information
• Accurate room status is essential for managing
room sale.
• On guest checkout, the room status is changed
from "occupied" to "vacant-dirty“/on-change
& housekeeping is informed of guest departure.
• After preparing the room, housekeeping informs
Front Office of "vacant-clean" status.
c. It creates guest history records
• Guest history files provide a powerful database
for strategic marketing.
[Link] Procedure
• Procedures vary depending upon the level of
service & degree of automation.

• The amount of personal contact between the guest

and the front desk vary due to automated or
express check-out services.

• Check-out is yet another chance too make a

positive impression on the guest.

• Guest should be greeted promptly and courteously.

Check-out procedure includes:
• Inquiring about additional recent charges from points
of sale.
• Posting outstanding charges.
• Verifying account information.
• Presenting guest folio.
• Verifying the method of payment.
• Processing the account payment.
• Checking for mail, messages or faxes.
• Checking for safe deposit box or in-room safe keys.
• Securing the room keys.
• Updating room status.
• Inquiring about the guest’s stay and experience.
6.1.2. Methods of settlement
• Zeroing out is bringing the guest account to zero on
guest checkout .
Guest account is zeroed out in the following ways :
a. Cash Payment in Full
• Bring a guest account balance to zero
• Folio is marked as paid.
If the guest has given a credit card as
• initial mode of settlement
• to gain charge privileges & given an imprint (credit card
voucher), destroy it in front of the guest.
• Foreign currency payments are through Encashment
Certificates (E.C.R.). – shows the amount
exchanged.

• Hotels display currency conversion rates for major

countries/make them available through newspapers.

b. Credit Card Transfer

• The guest account is zeroed & the amount is
transferred to credit card account in city ledger.
• Responsibility lies with credit card company &
credit control department.
c. Direct Billing Transfer
• Account transferred to appropriate city ledger account.
• Credit control department is responsible for payment
collection.
• This method is acceptable only when billing has been
arranged and approved by the hotel’s credit department.
• The guest has to sign the folio to verify that it is correct and
he/ she accepts the responsibility for all the charges contained
on the folio (should the direct billing account not pay the bill).
d. Combined Settlement Method
• in such cases, FOA must accurately record the combined
methods of settlement and
• take care that all required paperwork is done properly –
helpful for front office audit.
LATE CHECKOUT
• Guests do not always check out by the hotel’s posted
check out time,
• Late c/o is more common in resorts
To ensure
• that hotel does not face the problem of late check outs
and
• that the guests are aware of the c/o time,
the hotel must post c/o time in important and visible
places

• It may be included in the pre-departure material

distributed to the guests.
• The late c/o policy of the hotel must be clear and
explained to the staff very well to ensure that there
are no problems.

• Hotels may have late check-out fees.

• Communicated to the guests at the time of

registration or at the time when guest inquire
about late check-out.

• Check-out time is set to give housekeeping

sufficient time to prepare room for new guest.
6.2. Check-Out options
• The options for a guest to checkout besides the standard checkout
procedure are:
(a) Express Checkout
(b)Self-Checkout

(a) Express Checkout

• Used to ease the volume of work at front desk during peak hours
especially in mornings.

• They print and distribute guest folios to expected departures before

hand.

• Along with this pre-departure folio they distribute express checkout

forms with a note requesting the guest to notify any change in
departure plans.
• Done by front office, housekeeping or hotel
security staff before 6 A.M.

• Express checkout is given to guests with credit

card as their method of settlement.

• Here, the guest authorizes the hotel to transfer

his/her outstanding balance to the credit card
voucher.

• The guest deposits the form at the front desk and

checks out.
• The front desk completes the checkout procedure
afterwards.

• Here, there is a possibility of late charges and

this must be clearly mentioned on the express
checkout form.

• In case of late charges being added to a guest

account, a copy of the updated folio must be
mailed to the guest.
(b) Self check-out
• The provision for a guest to check him/her-self out of
the hotel by accessing either a terminal located in the
lobby or an in-room system.

• Such systems are interfaced with front office

computer and are intended to reduce checkout time.

Steps for terminal checkout

a. Guest accesses the correct folio and reviews it.
b. Guest either enters a credit card no. or swipes the
credit card on the credit card reader attached.
C. The balance is transferred to a credit card
account (in city ledger).
d. Account statement is printed & dispensed.
e. System automatically updates room status.
f. System updates guest history.
In-room system
• This system relies on an in-room television set
with a remote device or guestroom telephone
access via an in-room television set.

• The guests can preview their folios and confirm

previously approved method of settlement.

• They can collect printed folio copy from the

front desk on departure.
UNPAID ACCOUNT BALANCES

• Are after departure charges or outstanding

balances, regardless of the reason.
– the reasons may be late charges or
– the guest is a skipper or forger to check-out

• Late charges - a transaction requiring posting to a

guest account that does not reach the front desk
until after the guest has checked out & closed his/
her account.

E.g. restaurant, telephone, room service

• Even if late charges are eventually paid for, the
hotel incurs the additional costs involved in
after departure billing.

e.g. extra expenses for labor, postage,

stationary

• So, reducing late charges can be important to

maximizing profitability for some hotels.
Steps to reduce late charges:
a. Post transactional vouchers as soon as they
arrive at the front desk.

b. Survey front office equipment and voucher

& folio racks for unposted charges before
checking a guest out.

c. Ask the departing guests whether they have

incurred any charge purchases or placed long
distance calls that do not appear on their final
folio.
• A system may be established at front desk to ensure
that the charges are delivered & posted quickly.
• Late charges should not be classified as uncollectible
until the front office has exhausted all billing &
collection procedure.

Procedures may vary for cash/ credit settlements.

ACCOUNT COLLECTION
• Guest account not settled by cash in full, on check-out
are transferred from guest ledger to the city ledger
for collection.
• The responsibility shifts from front office to accounts
department .
Typical City ledger accounts:
a. Credit card billings to authorized credit card companies.
b. Direct billing to approved companies & individual accounts.
c. Travel agent accounts.
d. Bad cheques account resulting from departed guests whose
personal cheques were returned unpaid.
e. Skipper accounts.
f. Disputed bills account for guests who refuse to settle their
accounts because of discrepancy.
g. Guaranteed reservation account for billing & tracking no-
shows.
h. Late Charges accounts.
i. House account for non-guest businesses & promotional
activities .
ACCOUNT AGING
• A method of tracking past due accounts
according to the date the charges originated.
The accounts are categorized as:
A. Current Account - accounts less than 30 days
old.
B. Overdue Accounts - accounts between 30-90
days.
C. Delinquent Accounts - accounts older than 90
days and difficult to collect.
FRONT OFFICE RECORDS
a. Registration Card- Filed according to DOD (date of
departure) & Alphabetical order.
b. Folio - Filed according to DOD or serial no.
c. Guest History File- A collection of guest history records,
constructed from expired registration cards or created through
computer-based systems that automatically direct information
about the departing guests into a guest history database.
d. Guest History Record- A record of personal & financial
information about hotel guests, relevant to marketing & sales
that can help the hotel serve the guest on return visits.
• Some hotels maintain guest history through old registration
cards & others have their own guest history cards.
Uses of Guest History
a. Helps in providing better service.
b. Sales & Marketing could use these records as
a source for mailing lists or to identify guest
characteristics important for strategic marketing.
c. May point out need for new, supplementary or
enhanced services
d. One can get data on geographical distribution of
clientele for better marketing.
Marketing Follow Through
• A hotel's marketing program depends on Front
Office performance and follow-through at
check-out.

• Front office has to ensure that the guests are

benefited from such programs and ensure that
they get the program benefits.

• Check-out is the last opportunity to offer the

hotel’s services.