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Role of accounting in business Running head: Accounting in hotel organization

Role of accounting in hotel organization By Atluri Venkata Srinivasa Rao Reg No 12- 2046 THE CTL EURO COLLEGE

Lecturer: Accounting II THE CTL EURO COLLEGE

Role of accounting in business

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Content Introduction Accounting in Hospital industry

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Importance of accounting in Hospital Management 05




Role of accounting in business Introduction: According to the American Accounting Association, accounting is defined as the process of identifying, measuring and communication economic information to permit informed judgments and decisions by the users of the information. The above information is solely financial and the measurement and communication that are used to report on the activities of profit- seeking business organizations and not-for profit organizations is known as accounting. A business accounting system provides this accountability by recording all activities regarding the creation of monetary inflows of revenue and monetary outflows of expenses resulting from operating activities. To evaluate the current and past effectiveness accounting system is required and in addition to maintain the data required presenting reports showing the status of asset resources, creditor liabilities, and ownership equities of the business entity. International Accounting Standards Board (IASB) in 1989 issued a framework that largely reflected the conceptual framework of the Financial Accounting Standards Board of the USA issued in 1985. The framework was based on the ideas and proposals made by the accounting profession in 1970 in both USA and UK. For financial reporting Accounting Standards Board (ASB) of UK published a framework called Statement of Principles (SOP). For most of the individuals the objective is to study the financial data which is a part of accounting process. For example, bank officials study the financial statement to evaluate the companys ability to repay the loan. Prospective investors may compare the financial aspects of competitive companies and thereby decided about their future investment. For decision making accounting supplies financial data to the management. Before making the decision reliable information is required and accounting provides those data. Accounting information is valuable because decision makers can use it to evaluate the financial consequences of various alternatives.

Role of accounting in business Accountants eliminate the need for a crystal ball to estimate the future. They can reduce uncertainty by using professional judgment to quantify the future financial impact of taking or delaying action. The most important functions of accounting involve observing many events or activities to identify and measure the financial terms and those events are considered for economic activity. The above functions are referred to as analyze collectively and are used to predict the companys growth. The purchase and sale of goods and services are economic events. The economic group is the second category that is recorded and classified into meaningful groups and is summarized for convenient evaluation. Financial statements and special reports are prepared by the accountant to record the economic events. These will help the management, investors and creditors to determine the growth of the business and how to carry out further. Accounting in Hospital Industry: Accounting is important for all the business and it also plays a major role in the hospital management. It is concerned with providing specialized internal information to managers that are responsible for directing and controlling operations within the hospitality industry. Internal information is much more important for the managers for planning, motivating and controlling the entire process in the firm. Every firm has their own accounting cycles according to their convenient. Hospital business operations are generally identified as having a number of different revenue cycles. A daily operating cycle that applies to restaurant operations where they have daily sales revenue typically depends on meal periods. A weekly cycle is the second aspect which is due course happens in the hotels, motels and other hospitality operations that are being used by the business travelers frequently. A third form of cycle is the seasonal cycle that depends on the vacationers to provide revenue to the hotel during vacations. Apart from the above cycles,

Role of accounting in business the fourth and foremost accounting cycle is the generalized cycle that will exist during the recession period of the business and hospital industry experience major decline in their revenue. The various accounting cycle in hospital management ensures better maintaining of the accounts especially variable costs such as cost of labor and cost of sales. This will help the hotel industry for future budgeting and forecasting. It is very difficult to effectively automate the cost in the hospitality industry as it is people oriented and people driven industry rather than other nonhospitality industry. Due to high competitiveness that arises as a result of internationalization, hospitality industry faces an uphill task and for effective maintaining of the expenses accounting is very much important. The general functions of accounting and financial management are forecasting revenues and costs, planning activities, managing costs, identifying alternative sources and costs of funding, managing cash, negotiations with bankers, evaluation of investments, measurement and control of performance, union negotiations, negotiation with government and costing compliance with social, environmental and sustaining requirements. Importance of accounting in Hospital Management: According to Burgess, Hamptom, Price and Roper (1995), accounting entails in several aspects of the hospital industry. They have said that each level of accounting shutter its shadow in all aspects in any industry especially in hotel industry. The three process such as Measurement: It is the process of identifying and quantifying economic activities. These measurements provide insights into the profitability of a firms operations and the strength of its financial position. Disclosure: It is the process by which the intended users are being communicated about the accounting measurements.

Role of accounting in business Auditing: The reliability of the measurement and communication process is being attested by the accounting professionals so as to ensure the status of the company. The involuntary or the intentional release of information concerning any form of useful first hand stock depends upon the accounting procedure as it is the security to the business. In hospital industry it avoids the loss of income from misuse or from any errors of operation. The incomings and expenditure of the hotel business is verified within the above framework which is vital role played by accounting. By the term fields of operation in hotel industry mean those sections of the hotel in which the production procedure of the tourist goods and services as well as their availability takes place with the purpose of achieving profit. The main field of operations in hotel industry is the bedrooms, the bar, the buffet and the restaurant. Lekaratou and Nizami,(1994) states that these four field of operations are essential centers of earnings and cost and accounting plays a vital role in it. Accounting also ensures that actions that are taken in relation to hotel funding unit are vital or not. That is either capital is necessary for its smooth running. The danger of the lost capitals and credit danger appear to be the determining factors from its viability. The following actions are in effect within the framework of limiting the danger of correct constitution of the financial affairs: 1. It checks and controls the proper investments in accordance with the approved investment policy.
2. It controls the evaluation of cost of investments with the running values is mainly

compared as well as a check of the deposit and the loans. 3. The availabilities of the bank loan and deposits are controlled by updating frequently and confirming during the process.

Role of accounting in business The above facts clearly indicate that accounting procedure is important in the hotel industry to examine whether their strategic or financial management is effective or not. It also address the key issues whether to carry out any corrective measures in the business. In order to have an overall view of importance of accounting a pyramid will better describe the process.

The pyramid describes the importance of accounting as it the data has to be produced in the form of numbers and sort the data as per the requirement. The sorted data will provide certain information in term of the business condition and thereby allows the business people to take decisions based on that. Conclusion: Accounting is essential for all the businesses now a days and implementation of computerized accounting system will enable each business to operate effectively and efficiently. A business involving hospital industry especially requires accounting system as they operate on daily basis and forecast their future business.

Role of accounting in business References Hermanson, R. H., Edwards, J. D., & Maher, M. W. (2010). Accounting Principles: Business Perspective, Financial Accounting. New York: Richard D Irwin. (Original work published 1998) Jagels, M. G., & Coltman, M. M. (2004). Hospitality Management Accounting. New Jersey: John Wiley & Sons, Inc. The importance of financial accounting. (n.d.). http://catalogue.pearsoned.co.uk. Retrieved December 19, 2012, from catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/027372 3073.pdf