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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 $

Daily revenue report

79,700

Daily labor report

23,000

Weekly financial report

396,900

Monthly P&L

1,587,600

Profitability measurement
Planning ReportsThe
Future

1,587,600 4,762,800

The daily room count

600

The daily banquet schedule

400

Weekly revenue forecast

560,000

Weekly labor forecast

161,000

Monthly revenue forecast


Quarterly revenue forecast
End-of-year revenue forecast

19,051,200

1,596,000
4,788,000
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 hotels 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 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.

Sample Departmental P&L for Washington Hilton.


Washington Hilton,
Monthly Profit and Loss Statement,
For the Month of December 2013.

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)

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
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

2012 Annual Report

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

Heat, Light, and


Power
Repairs and
Maintenance
Accident
Expense
Training Expense
Sales and
Marketing
National Sales
and Marketing
Total Expense
Centers

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

Net House Profit

7,081,415

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
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

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.
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

Cash Ledger; Dual Format.


Dat
e

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

Sales and Marketing


National Sales and
Marketing

32,835

54,725

16,418
1,893,485
26,016,26
5

Bal c/d

Closing Profit and Loss statement.


Washington
Hilton
Consolidated Profit & Loss Statement for the
year ended 31st Dec 2013
2013
Actual

Room Revenues
Restaurant
Revenues
Total Hotel
Revenues

22,695,500

7,764,250

30,459,750

2012 Annual Report

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

Net House Profit

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