Essential financial techniques for hospitality managers
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By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Sourav Sharma. Insofar as the making of reprographic copies from this publication is permitted on the basis of Article 16h of the Copyright Act of , the compensation owed must be provided to the Stichting Reprorecht postbus , KB Hoofddorp, Netherlands, www. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the publisher.
This text provides an introduction to the basic management accounting concepts and applications relevant to students in any hospitality or tourism-related education. It examines the basic concepts and shows how they can be used to improve the quality of decisions made by managers in the related fields. Geared towards students who use English as a second language, the language is simple and in case of need, the concepts are illustrated with worked examples to ease their understanding.
This book is introductory in nature, and whenever necessary, the student can independently explore some of the topics in other books which could provide more detailed information. In this text, I have interchangeably made use of company, business entity, concern, organization, operation, and establishment, to mean the same in the sense that they represent the desire for entrepreneurship with the profit motive in mind. It should not be confusing to anyone. The topics have been selected based on the need of the target group and include the introduction to management accounting, the balance sheet, the profit and loss account statement, adjustments to the balance sheet and the profit and loss account statement, the cash flow statement, analyzing financial statements, ratio analysis and types of ratios, management of working capital, cost management, pricing and revenue management, cost-volume-profit analysis, internal control, forecasting, budgeting and variance analysis, and lastly, capital investment decisions.
Each chapter ends with a complete glossary of the key words, five multiple choice questions and four practice exercises. I want to place on record my gratitude to colleagues and friends for the advice and help I received in the course of writing this text. I am particularly grateful to Klaas-Wybo van der Hoek for believing in me. To the dean — Hans Zwart, and my colleagues of the financial management team in the Institute of International Hospitality Management — Marcus Hoekstra, Ale Hoekstra, Jurgen Coerts, and Cor Penning, I say once again thanks for the support through all the stages of writing this text.
Special thanks go to Miss Ramona Nolde who has worked tirelessly to make sure that the content should be as error-free as it is humanly possible. This book is accompanied by a website www. As a new book, comments and suggestions will be very welcome. Michael N.
Limited-service hotels are free-standing properties that do not have on-site restaurants or most other amenities that must be provided by a staff other than the front desk or housekeeping. May show signs of minor shelf wear and contain limited notes and highlighting. First 20 hotel groups announce 1. Skip to content. Because private companies are not driven by shares held by the public, their metrics are normally not per share but rather the total value of the company.
These changes have been driven by all the responses and comments from both colleagues who are using its first edition, as well as the students who used it. Many thanks are due to all of them for their useful and constructive ideas, comments and feedback that have contributed to what I hope will be an improved edition. The foremost changes content-wise are as follows: 1 The changes that have affected financial statements due to the evolution of the Uniform System of Accounts for the Lodging Industry USALI from its 10th edition to the 11th edition have been taken into account in the major financial statements especially as they affect the contents of Chapter 3 and Chapter 5.
I believe that this up-to-date and comprehensive coverage of basic management accounting within the hospitality industry makes this second edition an essential addition to the library of any hospitality management student. It is my hope that students and lecturers alike will find it to be a significant contribution to the field of hospitality management education and keep on ensuring its continued success.
It is as such necessary that managers within an organization obtain a basic understanding of accounting for them to be able to effectively and responsibly carry out their management functions. The information needs to come from all the areas of their management activities as well as used in all the related areas. Section 1.
In Section 1. All these different types of organizations have two things in common. First, every organization will have its set of goals or objectives. An example is that of the Compass Hotels Ltd. In these goals, they have highlighted some important aspects of their relationship with all their major stakeholders professional — management and employees; profitable — shareholders; ethical — all stakeholders as well as mentioning their suppliers and investors. Second, for an organization to be able to meet their established goals, its managers will need information. This section attempts to show why this information is needed, who uses it, as well as establish the general characteristics of the hospitality industry.
The structure of the subsections is as follows: 1.
Accounting is generally concerned with the reporting, summarizing and recording in monetary terms the transactions of an individual or an organization. However, this definition of accounting left some issues that could not be fully understood. To the individual, accounting information can be used in planning future spending levels, planning the acquisition of additional finance, controlling spending levels, and making decisions on how best to spend their money. As such, at this level accounting basically has 3 functions which are; planning, controlling and decision support.
The users of accounting information can be broadly split into two major categories; the internal users and the external users. The internal users would basically be the management of the organization. They will need this information due to the following reasons: planning; controlling; stewardship; and decision making.
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This type of accounting is by nature mostly managerial and would differ depending on the type of organization. The external users would generally be limited to the other major stakeholders of a company. These will include the employees of a company, the owners, lenders, suppliers, customers, the local community, and the government. Generally, these stakeholders are provided with accounting information through the establishment of annual reports.
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This type of accounting would on the contrary be mostly financial in nature. These decision makers may include shareholders, suppliers, financial institutions, employees, local authorities, and government agencies. This basic accounting system is a system of procedures, personnel and computers used to accumulate the financial data from within a company. It should be noted that financial accounting is generally regulated by various standards at the international level.
Exhibit 1. Management accounting is much more concerned with the provision and use of accounting information to managers within an organization. This permits the managers to be able to make informed business decisions and as such become better equipped in their management and control functions. As opposed to financial accounting, management accounting information is usually confidential and used by management alone.
Secondly, it is forward looking, historical, and computed using extensive management information systems and internal controls instead of complying with accounting standards, be they national or international. Management accounting experience and knowledge can be obtained from various fields and functions within a company such as information management, treasury, auditing, marketing, valuation, pricing, logistics, etc. These are called the generally accepted accounting principles GAAP and they provide the basis for the preparation of financial statements.
Below are the most important principles, followed by an introduction of the USALI and IFRS: Cost principle This principle indicates that a transaction should be recorded at its acquisition price or cash cost and this should represent its accounting value. It is difficult for example to compare income statements for different periods during periods of long-lasting inflation or deflation.
There are however some exceptions such as in the case of valuing inventory for resale, which can be done in terms of current currency values instead of the historical value.
Essential Financial Techniques for Hospitality Managers: a practical approach is a user friendly and hands-on introduction to finance and accounting in the. Essential. Financial Techniques for Hospitality. Managers. A Practical Approach. Second edition. Cathy Burgess. Goodfellow Publishers Ltd.
Business entity principle This principle indicates that accounting and financial statements are based on the concept that each business maintains its own set of accounts and that these accounts are separate from those of the owners. By this principle, the separation of the personal transactions of the owners from the company is an accounting or more so legal obligation that must be maintained.
The assets, debts and expenditures of the owners form no part of the company.
Essential Financial Techniques for Hospitality Managers : A practical manual
Time period principle This principle indicates that a company has to complete its analysis to report the financial condition and profitability of its business operation over a specific operating time period. This could be daily, weekly, monthly, quarterly, semi-annually, or annually.
An accounting year is an accounting period of one year. In hospitality businesses, statements are regularly prepared on monthly or even weekly basis. Going concern principle This principle indicates that at the time the business is preparing its statements, it is expected to live forever and that liquidation should not be a prospect.
Generally, the going concern principle assumes that a company will operate indefinitely. This also assumes that the cost of business assets will be recovered over time by way of profits that are generated by successful operations. Monetary unit principle This principle indicates that the financial statements should be based on transactions expressed in the primary national or regional in the case of some European countries with the Euro monetary unit.
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This should be used to record the numerical values of business exchanges and operating transactions. The monetary unit also expresses financial information within the financial statements and reports. Objectivity principle This principle indicates that all accounting transactions should be justified as much as possible on objective evidence.
This evidence is required to support a transaction before it can be entered into the accounting records. Some examples include the receipt for the payment of a guest cheque, or an invoice for the purchase of a new oven. In rare situations where such evidence cannot be obtained, expert estimates can be assumed.
Full disclosure principle This principle indicates that the financial statement should provide all information necessary for the understanding of the financial statement. Financial statements are primarily concerned with a past period. This principle states that any future event that can have an impact on the financial position of the business should be disclosed to the readers of the statements and these disclosures will normally be found in the footnotes to the statements. These disclosures could be of the following types: changes in accounting practices during the period, any contingent liabilities, and exceptional events.
Consistency principle This principle indicates that once an accounting method has been chosen by management, this should be used from period to period unless a change is necessary and this change must be disclosed. This principle was established to ensure comparability and consistency of the procedures and techniques used in the preparation of financial statements from one accounting period to the next.
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This principle requires that for each accounting period all sales revenues earned, whether received or not, must be recognized. It goes the same way with operating expenses, in the sense that they should all be recognized during the period, whether paid or not paid. This principle ensures that resulting net incomes or net losses provide the most accurate estimate of profit or loss for the period. Conservatism principle This principle indicates that expenses should be recognized as soon as possible whereas revenues should be recognized only when they are verified.