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Hospitality Accounting
Hilton Hotels & Resorts pride themselves in being the second largest hotel chain in the world. The measure is based on the bed capacities of the hotels across the globe. Started in 1919 by Conrad Hilton, the business has expanded to major cities in the 93 years of existence. To offer services all over the world, Hilton Worldwide, which owns the brand name Hilton Hotels & Resorts, franchises some of its branches to independent operators. However most Hilton branded hotels are managed by Hilton Worldwide.
Hilton Hotel’s marketing strategy aims to attract clients on business and leisure travel. Most of its hotel chains are found in major city centers, near airports. The company has also established resorts and leisure hotels in popular destinations for holiday lovers around the world (Hilton.com). To boost customer loyalty, Hilton has established a loyalty program that seeks to reward customers to its various hotels. The program, which is one of the largest in the world, offer discounts to Gold and Diamond members. This study aims to analyze operation at one of the Hilton hotels; Washington Hilton.
The Washington Hilton started operations in 1965 and now boasts of 1,070 rooms with 47 suites. The arch designed hotel has 12 floors and offers restaurant services and bar services to customers. The hotel is privately owned; therefore explicit details about its revenues are scanty. Experts however estimate that annual revenues range from 20-50 million dollars (manta.com). The hotel’s staff is estimated to be 100-249. The competitive advantage of this hotel is the location. Washington is one of the most visited states in the US given that most central government offices are located there.
Hospitality accounting refers to the accounting practices undertaken by hotels and restaurants. Accounting communicates to both external and internal users about the entity’s operation. In managing daily operation at a hotel, management relies on management accounts. These are different from the annual accounts prepared for external users. Hotel managers use two types of internal financial and management reports; one of the report presents summarized operating results for the previous day or week. The second report forecasts operations and activities for the next day or week. Such measures are important in hotel business owing to its sensitivity.
Hotel operations are expensive and mistakes in operations need to be identified as early as possible so that corrective actions are implemented immediately. An internal management report contains detailed operating information covering a specific time for a specific product, customer, department, or for the entire hotel or restaurant. It can contain the operational results for activities of the previous day or week, or it can contain the information required to plan the next day or week.
Daily and weekly reports are used internally as management tools, whereas monthly reports are used both as a management tool and to report the monthly financial results for the three formal financial statements: the P&L, the Balance Sheet, and the Statement of Cash Flow. The reports provide the basis of management in a hotel; the more a manager comprehends the reports; the better his/her management quality. Reports generated contain daily, weekly monthly, quarterly and annual information. The reports also include operating and financial information from previous periods which provides a basis for comparison. Future information is also part of the reports so as to provide an avenue of growth.
Daily Reports
They provide information on revenues and labour costs. They focus on providing the actual operating results for the previous day and comparing those results with forecasts, budget, the previous month, and last year’s information.
Daily Weekly Monthly Quarterly Annually
Performance Reports—The Past Amounts in $
Daily revenue report 79,700 Daily labor report 23,000 Weekly financial report 396,900 Monthly P&L 1,587,600 Profitability measurement 1,587,600 4,762,800 19,051,200
Planning Reports—The Future The daily room count 600 The daily banquet schedule 400 Weekly revenue forecast 560,000 Weekly labor forecast 161,000 Monthly revenue forecast 1,596,000 Quarterly revenue forecast 4,788,000 End-of-year revenue forecast 19,152,000
Assumptions made in the report include;
Past daily revenue was $79,700.
Labour force costs are $23,000; the hotel has 3 managers for its three departments, each earns $70,000 per month. Daily costs are $7,000. Other employees earn $10 per hour. The hotel has 200 other employees each working 8 hours per day.
Future trends indicate that on average, only 600 rooms will be occupied every night. Room charges per night are $100. The hotel expects to sell 400 meals daily at an average cost of $50 per meal. Daily revenue is expected to be $80,000.
Daily Revenue Report.
It is more of an audit report prepared to communicate the previous day operating information. Depending on the organization it can be referred to as; Sales and Occupancy Report, Daily Revenue Report or Gross Revenue Report. For purposes of this study, it will be referred to as the Daily Revenue Report. The report is organized into sections; departmental revenue report, hotel daily room statistics and Restaurants & Banquets Summary and hotel market segment information. The report is organized in a similar format as the Profit and Loss statement.
Labor Productivity Reports.
The Report includes daily labor productivity and wage information. Labor costs account for a significant portion of hotel’s total costs. Owing to the fluctuating nature hotel visits by clients, it is important that management constantly review the demand for labor. In instances of low customer numbers, the management should reduce the number of casuals in the hotel. Information provided by labor productivity reports indicate whether established labor guidelines have been met. In measuring productivity, the units of labor are compared to the units of output. Prior analysis indicates the amount of labor hours required to support a certain business. In the case of Hilton Washington, 200 employees each working 10 hours a day can support operation that will take care of 600-900 clients visiting the hotel. To fully support operations during full capacity, the hotel will be required to hire an extra 100 employees. Ratios and percentages are used to enhance understanding of labor costs.
Labor hours per room sold. Total labor hours divided by total rooms sold. Hilton Washington ratio is 2000/600. The interpretation is that three clients require 10 hours, which are the hours every employee other than management works daily. The ratio is important as it indicates shortage or excess of labor hours. By following established guidelines, management uses the ratio to hire or dismiss casuals.
Rooms cleaned or credits cleaned per shift. The formula is total rooms cleaned divided by one eight-hour shift. This ratio is mostly used by housekeeping department to determine the efficiency of employees in that department. Washington Hilton guest rooms are cleaned daily in two shifts. The first shift is expected to clean 300 rooms.
Labor hours per customer. Calculated by dividing the total number of customers served in the restaurant by the total number of labor hours. Washington Hilton expects to serve 400 guests daily at the restaurant. Therefore, labor hours per customer equals 2000/400; 5hrs.
The formulas are based on forecasted rooms sold or expected customers. They are a true measure of labor productivities since they relate labor input in labor hours to products and services produced.
Wage Cost Percentage.
This measure compares wage cost in dollars to revenue produced in dollars. It measures the dollar cost in wages incurred with respect to revenue level resulting from rooms sold or meals served. Wage cost percentages include;
Front office wage cost. Total front office wage cost in dollars divided by total room revenue in dollars. Washington Hilton has 20 employees working at the front office. Expected room revenue per day is $60,000. Total front office wages are 20*8*10=1600. Percentage equals; (1600/60,000) %= 26.67%. This is within the acceptable level as the hotel’s guidelines stipulate that this percentage should not exceed 30%
Wage cost per occupied room. The formula entails two steps. First, labor hours used is multiplied by hourly wage rate to give the wage cost in dollars. Second, the amount calculated is divided by the rooms occupied. In the case of Washington Hilton, labor hours used are 1,600 (200*8), the hourly wage rate is $10. The rooms occupied are 600. The wage cost per occupied room will therefore be $26.67.
Housekeeping wage cost. Calculated by dividing total housekeeping wages cost by total rooms revenue. Washington Hilton wages are $6,400 while the revenue is $60,000. (6400/60,000)=10.67%
Restaurant wage cost. Calculated by dividing total restaurant wage cost in dollars by total restaurant revenue in dollars. Washington Hilton has 100 employees working at the restaurant. Their total wage cost is $8,000(100*8*10), while the restaurant revenue is $20,000(400*50).
The percentage equals (8,000/20,000) is 40%. Thought the percentage appears high, it is within acceptable limits as most of the meals are sold to customers, who are staying in the hotel. The cost of food for such customers is subsidized to ensure they utilize the hotel’s restaurant.
Labor productivities are best measured with the above probabilities as they just measure labor input with labor output. They indicate how well labor wages are managed.
Weekly Internal Management Reports.
Information from these reports reviews and criticizes previous week’s performance. They are also used to forecast for the following week. Operations in hotels are planned for on weekly basis and therefore these reports are the primary documents of control by managers in the various departments.
Weekly Revenue Forecast-It is a detailed day by day forecast for the upcoming week expected revenue.
Weekly Wage and Cost Scheduling- Expected revenue determines the labor force required. Washington Hilton determines the labor requirement for the coming week on all Wednesdays. By correctly using the ratios above, management is able to accurately plan for the labor requirements in future.
Profitability forecasting- Profit are calculated by subtracting total expenditure from total revenue. Forecasted profits are calculated by subtracting forecasted expenses from forecasted income.
Monthly Internal Management Reports.
Having collected daily and weekly reports, the information content is enough to prepare monthly profit and loss statements.
Monthly P&L Statement-It’s a useful management tool since it shows the financial results of the operational performance for the month. The P&L attracts the greatest scrutiny among all financial statements. Management must therefore take great care to ensure that they report acceptable, fair and accurate P&Ls. The monthly consolidated P&L provides a detailed summary of every department’s revenues and expenses. The P&L presents the big picture of the hotel’s performance. P&Ls are required to enable the user to compare the present period with the past. As accountants prepare the statement, they have to include past period performance. The P&L also identifies departments that are performing and those underperforming. This is an important indicator to top level management as it identifies managers who are effective and efficient.
Sample Departmental P&L for Washington Hilton.
Washington Hilton,
Monthly Profit and Loss Statement,
For the Month of December 2013.
Forecast Actual Difference/Variation
Dollars Percentage Dollars Percentage Dollars Percentage
Room Revenue 1,860,000 1,900,000 40,000 2.1505
Management Wages (fixed expense) 140,000 7.5269 140,000 7.3684 – –
Hourly Wages (variable expense) 192,000 10.3226 200,000 10.5263 8,000 4.1667
Contract Cleaning (fixed expense) 250,000 13.4409 245,000 12.8947 (5,000) (2.0000)
Guest Supplies (variable expense) 80,000 4.3011 85,000 4.4737 5,000 6.2500
Reservation Cost (variable expense) 220,000 11.8280 210,000 11.0526 (10,000) (4.5455)
Total Fixed Expense 390,000 20.9677 385,000 20.2632 (5,000) (1.2821)
Total Variable Expense 492,000 26.4516 495,000 26.0526 3,000 0.6098
Total Expenses 882,000 47.4194 880,000 46.3158 (2,000) (0.2268)
Total Profit 978,000 52.5806 1,020,000 53.6842 42,000 4.2945
Retention or Flow Thru 42,000
The forecasted revenue for the Rooms Department was $1,860,000.Expected departmental profits were at $978,000. The forecasted profit percentage is 52.58%, which means that 0.526 cents out of every revenue dollar will be profit. Actual Room Revenue was $1,900,000 which is $40,000 more than the forecasted revenue. The percentage increase of the $40,000 incremental revenue is 2.15% ($40,000/$1,860,000). In other words, revenues were 2.15% higher than forecast.
P&L Statement; up to November 30th 2013.
Washington Hilton Consolidated Profit & Loss Statement for the period Jan-Nov 30th 201 Jan-Nov 30th 2013 2012 Annual Report Actual Budget Last Year Actual Budget Last Year
Room Revenues 20,795,500 20,357,700 18,377,172 20,088,000 20,000,000 18,000,000
Restaurant Revenues 7,114,250 6,785,900 6,125,724 6,696,000 6,600,000 5,940,000
Total Hotel Revenues 27,909,750 27,143,600 24,502,896 26,784,000 26,600,000 23,940,000
Rooms Profit 11,163,900 10,704,210 9,662,836 10,562,400 10,500,000 9,450,000
Restaurant Profit 437,800 354,618 320,118 349,920 325,000 292,500
Total Hotel Department Profit 11,601,700 11,058,828 9,982,954 10,912,320 10,825,000 9,742,500
General and Administrative 1,641,750 1,641,750 1,482,030 1,620,000 1,620,000 1,458,000
Heat, Light, and Power 87,560 65,670 59,281 64,800 60,000 54,000
Repairs and Maintenance 54,725 49,253 44,461 48,600 48,000 43,200
Accident Expense 27,363 27,363 24,701 27,000 25,000 22,500
Training Expense 32,835 30,646 27,665 30,240 30,000 27,000
Sales and Marketing 32,835 32,835 29,641 32,400 32,000 28,800
National Sales and Marketing 16,418 16,418 14,820 16,200 16,000 14,400
Total Expense Centers 1,893,485 1,863,934 1,682,598 1,839,240 1,831,000 1,647,900
House Profit 9,270,415 8,840,277 7,980,238 8,723,160 8,994,000 8,094,600
Fixed Expenses 2,189,000 2,189,000 1,976,040 2,160,000 2,200,000 1,980,000
Net House Profit 7,081,415 6,651,277 6,004,198 6,563,160 6,794,000 6,114,600
In the month of December 2013, Washington Hilton recorded an average of 600clients daily who spent the night at their rooms. The charge per night is $100. The restaurant registered a daily average sale of 400 meals. Each meal was sold at $50. During the month, the number of employee/casuals was 200, each working 8 hours a day at a rate of $10 per hour. The consolidated monthly profit and loss statement was as follows;
Washington Hilton
Consolidated Profit & Loss Statement for the Month of Dec 2013
Current Period 2012 Annual Report
Actual Budget Last Year Actual Budget Last Year
Room Revenues 1,900,000 1,860,000 1,674,000 20,088,000 20,000,000 18,000,000
Restaurant Revenues 650,000 620,000 558,000 6,696,000 6,600,000 5,940,000
Total Hotel Revenues 2,550,000 2,480,000 2,232,000 26,784,000 26,600,000 23,940,000
Rooms Profit 1,020,000 978,000 880,200 10,562,400 10,500,000 9,450,000
Restaurant Profit 40,000 32,400 29,160 349,920 325,000 292,500
Total Hotel Department Profit 1,060,000 1,010,400 909,360 10,912,320 10,825,000 9,742,500
General and Administrative 150,000 150,000 135,000 1,620,000 1,620,000 1,458,000
Heat, Light, and Power 8,000 6,000 5,400 64,800 60,000 54,000
Repairs and Maintenance 5,000 4,500 4,050 48,600 48,000 43,200
Accident Expense 2,500 2,500 2,250 27,000 25,000 22,500
Training Expense 3,000 2,800 2,520 30,240 30,000 27,000
Sales and Marketing 3,000 3,000 2,700 32,400 32,000 28,800
National Sales and Marketing 1,500 1,500 1,350 16,200 16,000 14,400
Total Expense Centers 173,000 170,300 153,270 1,839,240 1,831,000 1,647,900
House Profit 847,000 807,700 726,930 8,723,160 8,994,000 8,094,600
Fixed Expenses 200,000 200,000 180,000 2,160,000 2,200,000 1,980,000
Net House Profit 647,000 607,700 546,930 6,563,160 6,794,000 6,114,600
General and administrative expenses include system maintenance costs, commissions and travel allowances of top level managers. They actual cost and the budgeted cost are the same as Washington Hilton has adopted a policy to check on the variance of these costs.
Heat, Light &Power- The actual cost was higher than the budgeted cost owing to increased room and restaurant revenue. This cost is determined by the government as it provides electricity which powers Washington Hilton. The December bill was determined by the power supplier.
Repairs and maintenance. The cost is determined by past trends. In the month of December the cost was slightly higher than the budget. As from June 2013, Washington Hilton adopted outsourcing of repair and maintenance services to enhance efficiency. The company has seen great improvements since Smart Repairs undertook the responsibility of repairs and maintenance in the hotel. The actual amount indicated is the bill received from Smart Repairs.
Accident Expense. Minor accidents are common in hotels; however, the hotel loses money if the accidents are rampant. In the month of December, accidents reported, treated and billed to Hilton cost the hotel $2,500. Individuals who are involved in accidents in the hotel are treated at Washington Hospital, which is a five minute drive from the hotel. The hospital sends a monthly bill for payment by 15th of the following month.
Training Expense. Hotel business depends highly on economic conditions. Washington Hilton therefore hires and dismisses casuals depending on the number of clients visiting the hotel. This attracts training costs which must be incurred every time the hotel hires new employees. The hotel employed an additional 50 employees in anticipation of the Christmas period. The cost of training these new personnel was $3,000. This was $200 more than management expected.
Sales and Marketing. To ensure that the hotel remains competitive, management sets aside some amount for promotion. In the month of December, the hotel paid $2,000 for a TV advert on CNN. The $1,000 was spent on online marketing.
General Ledger Transactions for the above Revenues and Expenses.
To record Room Revenue Earned in Dec;
DRBank A/c1,900,000
CR Room revenue Income A/c1,900,000
To record Restaurant Revenue Earned in Dec;
DRBank A/c650,000
CR Restaurant Revenue Income A/c650,000
To record General and Admin Expenses in Dec.
DRGeneral&Admin Expenses A/c150,000
CR Bank A/c150,000
To record Heat Light & Power Expense incurred in Dec.
DRHeat, Light & Power8,000
CR Bank A/c8,000.
To record Repairs & Maintenance Expense incurred in Dec
DRRepairs & Maintenance A/c5,000
CR Bank A/c5,000
To record Accident Expense incurred in Dec
DRAccident A/c2,500
CR Bank A/c2,500
To record Training Expense incurred in Dec
DRTraining A/c3,000
CR Bank A/c3,000
To record sales & marketing Expense incurred in Dec
DR Sales & Marketing A/c3,000
CR Bank3,000
To record National sales &marketing Expense in Dec
DRNational Sales & Marketing A/c1,500
CR Bank1,500
Cash Ledger; Dual Format.
Date Particulars V.N L.F Amount Date Particulars V.N L.F Amount
Bank 20,795,500 General and Administrative 1,641,750
Bank 7,114,250 Heat, Light, and Power 87,560
Repairs and Maintenance 54,725
Accident Expense 27,363
Training Expense 32,835
Sales and Marketing 32,835
National Sales and Marketing 16,418
1,893,485
Bal c/d 26,016,265
Closing Profit and Loss statement.
Washington Hilton Consolidated Profit & Loss Statement for the year ended 31st Dec 2013 2013 2012 Annual Report Actual Budget Last Year Actual Budget Last Year
Room Revenues 22,695,500 22,217,700 18,377,172 20,088,000 20,000,000 18,000,000
Restaurant Revenues 7,764,250 7,405,900 6,125,724 6,696,000 6,600,000 5,940,000
Total Hotel Revenues 30,459,750 29,623,600 24,502,896 26,784,000 26,600,000 23,940,000
Rooms Profit 12,183,900 11,682,210 9,662,836 10,562,400 10,500,000 9,450,000
Restaurant Profit 477,800 387,018 320,118 349,920 325,000 292,500
Total Hotel Department Profit 12,661,700 12,069,228 9,982,954 10,912,320 10,825,000 9,742,500
General and Administrative 1,791,750 1,791,750 1,482,030 1,620,000 1,620,000 1,458,000
Heat, Light, and Power 95,560 71,670 59,281 64,800 60,000 54,000
Repairs and Maintenance 59,725 53,753 44,461 48,600 48,000 43,200
Accident Expense 29,863 29,863 24,701 27,000 25,000 22,500
Training Expense 35,835 33,446 27,665 30,240 30,000 27,000
Sales and Marketing 35,835 35,835 29,641 32,400 32,000 28,800
National Sales and Marketing 17,918 17,918 14,820 16,200 16,000 14,400
Total Expense Centers 2,066,485 2,034,234 1,682,598 1,839,240 1,831,000 1,647,900
House Profit 10,117,415 9,647,977 7,980,238 8,723,160 8,994,000 8,094,600
Fixed Expenses 2,389,000 2,389,000 1,976,040 2,160,000 2,200,000 1,980,000
Net House Profit 7,728,415 7,258,977 6,004,198 6,563,160 6,794,000 6,114,600
Works Cited
Hilton.com, Washington Hilton. 2013. Web. December 5 2013. http://www3.hilton.com/en/hotels/district-of-columbia/washington-hilton-DCAWHHH/index.html
Manta.com, Hilton-Washington. 2013. Web. December 5 2013. http://www.manta.com/c/mmjc3tl/hilton-washington
