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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 Hotels 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 hotels 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 entitys
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 years information.
Daily
Weekly Monthly
Performance ReportsThe
Past
Quarterly Annually
Amounts in $
79,700
23,000
396,900
Monthly P&L
1,587,600
Profitability measurement
Planning ReportsThe
Future
1,587,600 4,762,800
600
400
560,000
161,000
19,051,200
1,596,000
4,788,000
19,152,000
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 hotels 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 hotels 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 weeks 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-Its 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 departments revenues and expenses. The P&L presents the big picture of the hotels
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.
Dollars
Room Revenue
Management Wages
(fixed expense)
Hourly Wages (variable
expense)
Contract Cleaning (fixed
expense)
Guest Supplies (variable
expense)
Reservation Cost
(variable expense)
Forecast
Percentage
1,860,000
Actual
Percentage
1,900,000
14
0,000
Dollars
7.
5269
140,
000
Difference/Variation
Dollars
Percentage
40,000
2.1505
7.
3684
192,000
10.3226
200,000
10.5263
8,000
4.1667
250,000
13.4409
245,000
12.8947
(5,000)
(2.0000)
80,000
4.3011
85,000
4.4737
5,000
6.2500
220,000
11.8280
210,000
11.0526
(10,000)
(4.5455)
390,000
20.9677
385,000
20.2632
(5,000)
(1.2821)
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
Retention or Flow Thru
978,000
52.5806
1,020,000
53.6842
42,000
4.2945
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
Actual
Room Revenues
Restaurant
Revenues
Total Hotel
Revenues
20,795,500
7,114,250
27,909,750
Budget
Last
Year
Actual
Budget
Last Year
20,357,700
18,377,1
72
20,088,00
0
20,000,00
0
18,000,00
0
6,785,900
6,125,72
4
6,696,000
6,600,000
5,940,000
27,143,600
24,502,8
96
26,784,00
0
26,600,00
0
23,940,00
0
10,562,40
0
10,500,00
0
9,450,000
Rooms Profit
11,163,900
10,704,210
9,662,83
6
Restaurant Profit
Total Hotel
Department
Profit
437,800
354,618
320,118
349,920
325,000
292,500
11,601,700
11,058,828
9,982,95
4
10,912,32
0
10,825,00
0
9,742,500
1,641,750
1,641,750
1,482,03
0
1,620,000
1,620,000
1,458,000
General and
Administrative
87,560
65,670
59,281
64,800
60,000
54,000
54,725
49,253
44,461
48,600
48,000
43,200
27,363
27,363
24,701
27,000
25,000
22,500
32,835
30,646
27,665
30,240
30,000
27,000
32,835
32,835
29,641
32,400
32,000
28,800
16,418
16,418
14,820
16,200
16,000
14,400
1,863,934
1,682,59
8
1,839,240
1,831,000
1,647,900
8,723,160
8,994,000
8,094,600
1,893,485
House Profit
9,270,415
8,840,277
7,980,23
8
Fixed Expenses
2,189,000
2,189,000
1,976,04
0
2,160,000
2,200,000
1,980,000
6,651,277
6,004,19
8
6,563,160
6,794,000
6,114,600
7,081,415
Washington Hilton
Consolidated Profit & Loss Statement for the Month of Dec 2013
Current Period
2012 Annual Report
Last
Actual
Budget
Year
Actual
Budget
Room Revenues
Last Year
Restaurant
Revenues
Total Hotel
Revenues
1,900,000
1,860,000
1,674,00
0
650,000
620,000
558,000
6,696,000
6,600,000
5,940,000
2,480,000
2,232,00
0
26,784,00
0
26,600,00
0
23,940,00
0
10,500,00
0
9,450,000
2,550,000
20,088,00
0
20,000,00
0
18,000,00
0
Rooms Profit
1,020,000
978,000
880,200
10,562,40
0
Restaurant Profit
Total Hotel
Department
Profit
General and
Administrative
Heat, Light, and
Power
Repairs and
Maintenance
Accident
Expense
40,000
32,400
29,160
349,920
325,000
292,500
10,825,00
0
9,742,500
1,060,000
1,010,400
909,360
10,912,32
0
150,000
150,000
135,000
1,620,000
1,620,000
1,458,000
8,000
6,000
5,400
64,800
60,000
54,000
5,000
4,500
4,050
48,600
48,000
43,200
2,500
2,500
2,250
27,000
25,000
22,500
Training Expense
Sales and
Marketing
National Sales
and Marketing
Total Expense
Centers
3,000
2,800
2,520
30,240
30,000
27,000
3,000
3,000
2,700
32,400
32,000
28,800
1,500
1,500
1,350
16,200
16,000
14,400
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
647,000
607,700
546,930
6,563,160
6,794,000
6,114,600
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.
1. To record Room Revenue Earned in Dec;
DR
Bank A/c
1,900,000
CR
Room revenue Income A/c
1,900,000
2. To record Restaurant Revenue Earned in Dec;
DR
Bank A/c
650,000
CR
Restaurant Revenue Income A/c
650,000
3. To record General and Admin Expenses in Dec.
DR
General&Admin Expenses A/c
150,000
CR
Bank A/c
150,000
4. To record Heat Light & Power Expense incurred in Dec.
DR
Heat, Light & Power
8,000
CR
Bank A/c
8,000.
5. To record Repairs & Maintenance Expense incurred in Dec
DR
Repairs & Maintenance A/c
5,000
CR
Bank A/c
5,000
6. To record Accident Expense incurred in Dec
DR
Accident A/c
2,500
CR
Bank A/c
2,500
7. To record Training Expense incurred in Dec
DR
Training A/c
CR
Bank A/c
8. To record sales & marketing Expense incurred in Dec
DR
Sales & Marketing A/c
CR
Bank
9. To record National sales &marketing Expense in Dec
DR
National Sales & Marketing A/c
CR
Bank
3,000
3,000
3,000
3,000
1,500
1,500
Particula
rs
Bank
Bank
V.
N
L.
F
Amount
20,795,50
0
Dat
e
Particulars
General and
Administrative
Heat, Light, and
V.
N
L.
F
Amount
1,641,750
7,114,250
Power
Repairs and
Maintenance
87,560
Accident Expense
27,363
Training Expense
32,835
32,835
54,725
16,418
1,893,485
26,016,26
5
Bal c/d
Room Revenues
Restaurant
Revenues
Total Hotel
Revenues
22,695,500
7,764,250
30,459,750
Budget
Last
Year
Actual
Budget
Last Year
22,217,700
18,377,1
72
20,088,00
0
20,000,00
0
18,000,00
0
7,405,900
6,125,72
4
6,696,000
6,600,000
5,940,000
29,623,600
24,502,8
96
26,784,00
0
26,600,00
0
23,940,00
0
10,562,40
0
10,500,00
0
9,450,000
Rooms Profit
12,183,900
11,682,210
9,662,83
6
Restaurant Profit
Total Hotel
Department
477,800
387,018
320,118
349,920
325,000
292,500
12,661,700
12,069,228
9,982,95
10,912,32
10,825,00
9,742,500
Profit
General and
Administrative
Heat, Light, and
Power
Repairs and
Maintenance
Accident
Expense
1,620,000
1,620,000
1,458,000
Training Expense
Sales and
Marketing
National Sales
and Marketing
Total Expense
Centers
House Profit
Fixed Expenses
1,791,750
1,791,750
1,482,03
0
95,560
71,670
59,281
64,800
60,000
54,000
59,725
53,753
44,461
48,600
48,000
43,200
29,863
29,863
24,701
27,000
25,000
22,500
35,835
33,446
27,665
30,240
30,000
27,000
35,835
35,835
29,641
32,400
32,000
28,800
17,918
17,918
14,820
16,200
16,000
14,400
2,034,234
1,682,59
8
1,839,240
1,831,000
1,647,900
9,647,977
7,980,23
8
8,723,160
8,994,000
8,094,600
2,389,000
1,976,04
0
2,160,000
2,200,000
1,980,000
7,258,977
6,004,19
8
6,563,160
6,794,000
6,114,600
2,066,485
10,117,415
2,389,000
7,728,415
Works Cited
Hilton.com, Washington Hilton. 2013. Web. December 5 2013.
http://www3.hilton.com/en/hotels/district-of-columbia/washington-hiltonDCAWHHH/index.html
Manta.com, Hilton-Washington. 2013. Web. December 5 2013.
http://www.manta.com/c/mmjc3tl/hilton-washington