Hotel accounting

Hotel Management and Catering (BHM/B.Sc HHA) · Management · free study notes for exams, placements and interviews

In short

Hotel accounting is the system of recording, classifying, reporting and controlling the money flows of a hotel - room sales, food and beverage sales, other operating income, departmental costs, undistributed overheads, fixed charges and taxes. It differs from ordinary trading accounting because revenue arises from a perishable, non-storable product (a room-night), is earned around the clock, and is reported department by department under the Uniform System of Accounts for the Lodging Industry (USALI). It matters because room rates, package pricing, budget approvals and manager incentives are all decided from these numbers. It is examined in BHM/B.Sc HHA "Hotel Accountancy / Financial Management / Front Office Management" papers and is tested in management-trainee and front-office placement rounds at Taj (IHCL), Oberoi, ITC Hotels, Marriott, Accor, Hyatt, Radisson, Lemon Tree and OYO - usually as ADR/RevPAR sums, night-audit logic and a departmental P&L.

Explained

Why hotel accounting is special, and the books it uses

Perishable inventory: an unsold room-night earns nothing and cannot be carried forward, so revenue management and accounting are tightly linked; the accounting day therefore closes at a fixed hour (usually 2-4 a.m.), not at midnight.
24-hour operation: the night audit is the daily closing process that balances the day's postings and rolls the date forward in the PMS.
Many small transactions, many revenue centres: rooms, restaurants, bar, banquets, spa, laundry, telephone, business centre - each a separate profit centre with its own revenue, cost of sales and payroll.
Credit to guests in-house: charges accumulate on a guest folio and are settled at check-out, so hotels keep two receivable ledgers.
Guest ledger (front office ledger / transient ledger): accounts of guests currently in-house, maintained in the PMS as folios; balanced every night.
City ledger (non-guest ledger): accounts receivable of guests who have checked out without paying cash - corporate accounts, travel agents, OTAs, credit cards awaiting settlement, banquet clients, bad-debt and skipper accounts, and employee/management accounts.
Supporting records: visitors tabular ledger (VTL) in manual systems, restaurant KOTs and BOTs, allowance/rebate vouchers, paid-outs (VPO), miscellaneous charge orders (MCO), petty cash/imprest, purchase requisitions, goods received notes, stores issue notes, F&B cost control sheets.
Accounting basis: accrual basis, double entry, with Indian companies following the Companies Act, 2013 and Ind AS (or AS for smaller entities); hotel revenue recognition follows Ind AS 115 (revenue recognised as the room-night/service is delivered, loyalty points and advance deposits deferred).

The night audit, step by step

Complete all outstanding postings from outlets and POS - restaurant, bar, spa, laundry, telephone, minibar.
Verify room status and rate - compare housekeeping occupancy report with the PMS; find and correct sleepers (shown occupied, actually vacant) and skippers (left without paying).
Post room charge and taxes to every occupied folio (room revenue roll, including rate variances and complimentary/house-use rooms recorded at zero or allocated).
Post allowances and rebates on approved vouchers (service failure, rate error, over-posting) - these reduce revenue, not expense.
Reconcile departmental totals - POS sales versus front-office postings, by department, to find transfer errors.
Balance the guest ledger: opening balance + charges − credits = closing balance; prove each folio.
Settle and verify credit-card and OTA batches, move checked-out balances to the city ledger.
Run the trial balance / daily transcript, then the night audit report, Manager's / Daily Flash Report and the three-column cash sheet.
Roll the system date and take backups; print the arrivals and departures lists for the new day.
Key control identity: net outstanding = previous outstanding + today's charges − today's credits; any mismatch is traced before the date roll.

USALI departmental reporting structure

Operated departments report revenue, cost of sales, payroll and related expenses, other expenses → departmental profit.
- *Rooms:* no cost of sales; main costs are payroll, linen, guest supplies, commissions, laundry.
- *Food and Beverage:* has cost of sales (food cost, beverage cost), plus payroll and other expenses.
- *Other operated departments:* spa, laundry, telephone, golf, parking.
- *Miscellaneous income:* rentals of shops, interest, cancellation fees, no-show revenue, surplus/salvage.
Undistributed operating expenses (not charged to a department): Administrative and General, Information and Telecommunication Systems, Sales and Marketing, Property Operation and Maintenance (POMEC), Utilities.
Gross Operating Profit (GOP) = total departmental profit − undistributed operating expenses. GOP is the measure of the general manager's performance because it is within operational control.
Below GOP: management fees → non-operating income and expenses (rent, property tax, insurance) → EBITDA → depreciation and amortisation → interest → EBT → tax → net profit. Replacement reserve/FF&E reserve is shown separately.
Allocation: utilities and maintenance are either left undistributed (USALI) or allocated to departments on floor area/consumption for internal analysis - the exam answer is that USALI keeps them undistributed.

Rooms-division statistics and revenue measures

Occupancy %, ADR (average daily rate), RevPAR, GOPPAR, TRevPAR are the standard measures (formulas in the next section).
Double occupancy % shows how many rooms carry more than one guest - drives F&B covers and amenity cost.
Rate structures: rack rate (published), corporate/BAR (best available rate), group, package, crew, FIT versus GIT, complimentary and house use.
Meal plans and what room revenue includes: EP (room only), CP (bed and breakfast), MAP/Half board (breakfast + one meal), AP/Full board (all meals). In package rates the F&B component is split out at a notional transfer value and credited to F&B - otherwise the rooms department is over-credited.
Yield (rate potential) analysis: actual revenue against potential revenue at rack rate for all rooms; shows whether a high occupancy was bought by discounting.

Cost control, inventory and F&B costing

Cost behaviour: fixed (depreciation, rent, salaried payroll, insurance), variable (food and beverage cost, guest supplies, commissions), semi-variable (utilities, hourly payroll, laundry). Hotels are high-fixed-cost businesses, so profit is very sensitive to occupancy - high operating leverage.
Cost of food consumed = opening stock + purchases − closing stock, adjusted for transfers in/out and staff meals; food cost % is the single most watched F&B ratio.
Inventory valuation: FIFO or weighted average cost (LIFO is not permitted under Indian accounting standards); valued at lower of cost and net realisable value (AS 2 / Ind AS 2). Perpetual inventory for high-value items (liquor, meat), physical stock-taking monthly.
Store control tools: par stock, reorder level, ABC analysis, bin cards, dead stock reports, pilferage checks, standard recipe costing and standard portion cost.
Capital versus revenue: FF&E and renovations are capitalised and depreciated; repainting and replacing broken crockery is revenue expense. Depreciation is written down value or straight line under Schedule II of the Companies Act, 2013 useful lives.
Operating equipment (linen, cutlery, crockery, glassware, uniforms) is a hotel-specific asset class - often capitalised and amortised or treated as a circulating asset with periodic physical counts.

Budgeting, pricing and working capital

Budget types: operating budget (annual revenue and expense by department, usually month-wise and day-wise for rooms), capital budget (FF&E and projects), cash budget. Zero-base budgeting is used for A&G and marketing; incremental for payroll.
Forecasting rooms revenue: rooms available × forecast occupancy × forecast ADR, built up by market segment, with seasonality and city-level events.
Flexible budget and variance analysis: compare actual against a budget re-flexed to actual occupancy; split variances into rate variance and volume (occupancy) variance.
Hubbart formula (bottom-up room rate pricing): start with the required return on owners' investment, add income tax, fixed charges, undistributed expenses and rooms-department expenses, subtract profits from other departments, divide by rooms expected to be sold → average rate needed.
Working capital: low inventory, fast cash cycle on walk-in and card sales, but slow collection from corporates and OTAs - debtor control and OTA commission reconciliation are major tasks. Advance deposits and banquet advances are liabilities until service is rendered.
Ratios used: current ratio, debt-equity, debtors days, inventory turnover (F&B stock turns are expected to be high - food much faster than liquor), return on capital, payroll as % of revenue (a key USALI benchmark).

Indian taxes, statutes and compliance touching hotel accounts

GST on accommodation (slabs restructured from 22 September 2025; GST rates change often, so verify the current notification): all rooms up to ₹7,500 per unit per day are at 5% without input tax credit (the earlier exemption for tariffs up to ₹1,000 was withdrawn in July 2022); above ₹7,500 at 18% with ITC. Restaurant service inside a hotel is 18% with ITC only where the hotel is a "specified premises" - any unit supplied above ₹7,500 per day in the preceding financial year, or an opt-in declaration (the old "declared tariff" test was dropped from 1 April 2025); otherwise 5% without ITC. Outdoor catering and banquets follow their own rate. The 40% slab applies to demerit goods, not room tariff.
Value of supply for rooms is the transaction value actually charged, not the rack/declared tariff; the ₹7,500 threshold for the restaurant rate, however, is tested on the premises' actual supply value in the preceding financial year (the "specified premises" test).
Place of supply for accommodation is the location of the property, so hotels raise intra-state CGST+SGST even for a guest from another state; this is why OTAs bill commission separately.
TCS/TDS: TDS is deducted on contractor payments, rent, professional fees and commission under the Income-tax Act, 2025 (in force from 1 April 2026, which replaced the Income-tax Act, 1961 and renumbered all sections and forms) - quote the provision by name rather than an old section number unless certain. The equalisation levy is gone (the 2% e-commerce levy from 1 August 2024, the 6% advertising levy from 1 April 2025), so commission paid to a foreign OTA is examined only for withholding under the Act read with the tax treaty.
Other compliance: Companies Act, 2013 for accounts and audit; the four Labour Codes in force from 21 November 2025 (Code on Wages, Industrial Relations, Social Security, OSH&WC) govern payroll, overtime, bonus, gratuity and PF/ESI accounting and replaced the earlier Minimum Wages, Industrial Disputes, Factories and BOCW Acts; FEMA and RBI rules for foreign-exchange encashment (authorised money changer records, Form C/encashment certificates); FSSAI licence costs; excise/state licence fees for liquor; municipal property tax and licence fees.
Service charge is a voluntary charge; Indian consumer-protection guidelines prohibit making it compulsory, and litigation on it has continued - if levied, it is a distinct line from service tax-era taxes and is distributed per policy.

Key points

Night audit - the daily closing of accounts in a 24-hour business; posts room charges and taxes, balances ledgers, rolls the date.
Guest ledger - receivables of in-house guests held as folios; city ledger - receivables of settled/checked-out and non-guest accounts.
USALI - the global uniform format that reports each hotel department separately and ends at GOP; makes hotels comparable.
Departmental profit - departmental revenue − cost of sales − payroll − other direct expenses; rooms has no cost of sales.
Undistributed expenses - A&G, IT, Sales and Marketing, POMEC, Utilities - not charged to any department.
GOP - departmental profits − undistributed expenses; the GM's accountability line. GOPPAR = GOP ÷ available room-nights.
ADR - rooms revenue ÷ rooms sold (excludes complimentary and house-use rooms).
RevPAR - rooms revenue ÷ rooms available = ADR × occupancy %; the core rooms yardstick.
Allowance/rebate - a reduction of revenue for service failure or posting error, never an expense.
Cost of food consumed - opening stock + purchases − closing stock ± transfers − staff meals.
High operating leverage - large fixed costs mean a small occupancy change swings profit sharply; hence low break-even focus.
Hubbart formula - bottom-up room rate from the owner's required return downwards.
Flash report - the GM's same-day snapshot of occupancy, ADR, revenue and covers, before the audited monthly P&L.
Ind AS 115 / accrual basis - revenue recognised when the room-night or service is provided; advances and loyalty points deferred.
GST on rooms - up to ₹7,500 per unit per day at 5% without ITC, above ₹7,500 at 18% with ITC (verify the current notification).
Place of supply for accommodation - the hotel's location, so CGST+SGST always.
Income-tax Act, 2025 - in force 1 April 2026, replacing the 1961 Act with renumbered sections and forms.
Labour Codes from 21 November 2025 - govern wages, bonus, gratuity, PF/ESI postings in hotel payroll.

Formulas and examples

Occupancy % = (Rooms sold ÷ Rooms available) × 100 — rooms available = total saleable rooms × nights in the period (deduct rooms out of order).
ADR (₹) = Net rooms revenue ÷ Rooms sold (rooms sold excludes complimentary and house-use rooms).
RevPAR (₹) = Net rooms revenue ÷ Rooms available = ADR × Occupancy %.
TRevPAR (₹) = Total hotel revenue ÷ Rooms available; GOPPAR (₹) = GOP ÷ Rooms available.
Double occupancy % = ((Guests − Rooms sold) ÷ Rooms sold) × 100.
Average rate per guest (₹) = Net rooms revenue ÷ Number of guests.
Cost of food consumed (₹) = Opening stock + Purchases − Closing stock + Transfers in − Transfers out − Staff meals.
Food cost % = (Cost of food consumed ÷ Food sales) × 100; Gross profit % = 100 − Food cost %.
Selling price (₹) = Portion cost ÷ (Desired food cost % ÷ 100); Mark-up factor = 100 ÷ Food cost %.
Departmental profit (₹) = Dept revenue − Cost of sales − Payroll & related − Other direct expenses.
GOP (₹) = Σ Departmental profits − Undistributed operating expenses.
Contribution per room-night (₹) = ADR − Variable cost per occupied room.
Break-even rooms = Fixed costs ÷ Contribution per room-night; Break-even occupancy % = (Break-even rooms ÷ Rooms available) × 100.
Hubbart average rate (₹) = [Required ROI + Income tax + Fixed charges + Undistributed expenses + Rooms dept expenses − Other departmental profits] ÷ Rooms expected to be sold.
Guest ledger closing balance (₹) = Opening balance + Charges posted − Credits (payments, allowances, transfers to city ledger).
Yield / rate potential % = (Actual rooms revenue ÷ Potential rooms revenue at rack rate) × 100.

Example 1 - Occupancy, ADR, RevPAR and double occupancy. A 180-room hotel in Pune; in March (31 days) 6 rooms were out of order for the whole month. Rooms sold = 3,720 (including 30 complimentary). Net rooms revenue = ₹2,04,60,000. Guests accommodated = 5,166.

Rooms available = (180 − 6) × 31 = 174 × 31 = 5,394.
Occupancy % = 3,720 ÷ 5,394 × 100 = 68.96%.
Revenue-earning rooms sold = 3,720 − 30 = 3,690 → ADR = 2,04,60,000 ÷ 3,690 = ₹5,544.72.
RevPAR = 2,04,60,000 ÷ 5,394 = ₹3,793.10. (Check: ADR × occupancy using paid rooms = 5,544.72 × 3,690/5,394 = ₹3,793.10.)
Double occupancy % = (5,166 − 3,720) ÷ 3,720 × 100 = 38.87%.

Example 2 - Night audit ledger balance and a GST-inclusive folio. Guest ledger opening balance ₹8,40,000. Today: room charges ₹3,60,000, F&B postings ₹1,45,000, laundry ₹12,000, allowances approved ₹9,000, cash and card settlements ₹2,30,000, balances transferred to city ledger on check-out ₹1,85,000, GST posted on the day's charges ₹55,000.

Total charges = 3,60,000 + 1,45,000 + 12,000 + 55,000 = ₹5,72,000.
Total credits = 9,000 + 2,30,000 + 1,85,000 = ₹4,24,000.
Closing guest ledger = 8,40,000 + 5,72,000 − 4,24,000 = ₹9,88,000.
*Folio check:* a room billed at ₹6,000 for one night is rated on its transaction value, not on any declared tariff, so ₹6,000 attracts 5% without ITC → GST ₹300, folio total ₹6,300. The same room sold at ₹9,000 attracts 18% with ITC → GST ₹1,620, folio total ₹10,620.

Example 3 - Departmental P&L down to GOP and GOPPAR. Same 180-room hotel, one month; rooms available 5,394 (as above).

Line	Rooms (₹)	F&B (₹)	Other OD (₹)	Total (₹)
Revenue	2,04,60,000	96,00,000	14,00,000	3,14,60,000
Cost of sales	0	30,72,000	4,20,000	34,92,000
Payroll and related	30,69,000	26,88,000	3,50,000	61,07,000
Other direct expenses	18,41,400	9,60,000	1,80,000	29,81,400
Departmental profit	1,55,49,600	28,80,000	4,50,000	1,88,79,600

Undistributed: A&G ₹18,00,000; IT ₹4,50,000; Sales & Marketing ₹14,00,000; POMEC ₹12,60,000; Utilities ₹22,00,000 → total ₹71,10,000.

GOP = 1,88,79,600 − 71,10,000 = ₹1,17,69,600; GOP % of total revenue = 1,17,69,600 ÷ 3,14,60,000 × 100 = 37.41%.
GOPPAR = 1,17,69,600 ÷ 5,394 = ₹2,181.98; TRevPAR = 3,14,60,000 ÷ 5,394 = ₹5,832.41.
F&B cost of sales % = 30,72,000 ÷ 96,00,000 × 100 = 32%; Rooms departmental profit % = 1,55,49,600 ÷ 2,04,60,000 × 100 = 76.0% - the classic contrast that explains why rooms revenue is chased hardest.

Example 4 - Break-even occupancy. Monthly fixed costs (undistributed + fixed charges + salaried payroll) ₹1,10,00,000. ADR ₹5,500; variable cost per occupied room (housekeeping supplies, linen, utilities, commission, hourly payroll) ₹1,100. Rooms available 5,394. Assume rooms are the only revenue source.

Contribution per room-night = 5,500 − 1,100 = ₹4,400.
Break-even rooms = 1,10,00,000 ÷ 4,400 = 2,500 room-nights.
Break-even occupancy = 2,500 ÷ 5,394 × 100 = 46.35%.
At 69% occupancy (3,722 rooms, rounded): profit = 3,722 × 4,400 − 1,10,00,000 = 1,63,76,800 − 1,10,00,000 = ₹53,76,800 - a 23-point occupancy gain multiplies profit, which is operating leverage.

Example 5 - Hubbart formula and food cost pricing. Owners' investment ₹60 crore, required return 12% after tax; effective tax rate 25%; fixed charges ₹6,00,00,000; undistributed expenses ₹8,52,00,000; rooms department expenses ₹5,88,00,000; other departmental profits ₹4,00,00,000; rooms expected to be sold in the year 60,000.

Required after-tax profit = 60,00,00,000 × 12% = ₹7,20,00,000 → pre-tax = 7,20,00,000 ÷ (1 − 0.25) = ₹9,60,00,000.
Rooms revenue needed = 9,60,00,000 + 6,00,00,000 + 8,52,00,000 + 5,88,00,000 − 4,00,00,000 = ₹26,00,00,000.
Required ADR = 26,00,00,000 ÷ 60,000 = ₹4,333 (the average rate the project must achieve; the standard exam lesson is that this output must then be tested against the market - if the market will not pay it, the formula has exposed an over-capitalised project or an over-optimistic occupancy assumption).
*Menu pricing:* a dish with portion cost ₹96 at a target food cost of 30% sells at 96 ÷ 0.30 = ₹320 (mark-up factor 3.33), before GST and before any discount.

Where it is used

Hotel finance and accounts departments (IHCL/Taj, Oberoi, ITC Hotels, Marriott, Accor, Hyatt, Radisson, Lemon Tree, Sarovar): income auditor, night auditor, accounts receivable (city ledger) executive, F&B cost controller, purchase and stores, financial controller.
Front office and reservations: the night audit, bill settlement, high-balance and credit-limit checks, no-show and cancellation charges, group billing and routing instructions in the PMS.
Revenue management and corporate offices: ADR/RevPAR/GOPPAR dashboards, segment-wise rate loading, OTA commission reconciliation, STR-style competitive-set indices (MPI, ARI, RGI).
F&B and kitchen management: standard recipe costing, portion control, food and beverage cost percentage reports, banquet costing and per-cover profitability.
Owners, asset managers and lenders: management contracts paid on revenue plus a share of GOP; project feasibility, DSCR and valuation built on RevPAR and GOP forecasts; FF&E reserve funding.
Statutory and audit work: GST returns and e-invoicing, TDS, payroll under the Labour Codes, statutory audit under the Companies Act, 2013, FEMA foreign-exchange encashment records, and internal audit of pilferage and allowance abuse.

Interview questions

Q: What is the difference between the guest ledger and the city ledger? A: The guest ledger holds the folio accounts of guests currently in-house; the city ledger holds receivables of accounts no longer in-house - corporates, travel agents, OTAs, credit cards awaiting settlement and banquet clients.
Q: Why does a hotel need a night audit when the PMS posts everything automatically? A: Because the business never closes, someone must fix a cut-off, verify room status and rates, post room charges and taxes, prove the ledgers and roll the date; the system cannot detect sleepers, skippers, mis-postings or unapproved allowances.
Q: Difference between ADR and RevPAR, and which is a better measure? A: ADR divides rooms revenue by rooms sold, RevPAR by rooms available. RevPAR is better because it captures both rate and occupancy; a high ADR with poor occupancy can still mean weak revenue.
Q: Do you include complimentary rooms in occupancy and in ADR? A: They are counted in rooms sold for occupancy percentage but excluded from the rooms used to compute ADR, since they earn no revenue and would otherwise depress the rate.
Q: What is GOP and why is the general manager judged on it? A: Departmental profits less undistributed operating expenses; it stops before management fees, rent, depreciation, interest and tax - the items a GM cannot control.
Q: Why does the rooms department show a much higher departmental profit percentage than F&B? A: Rooms have no cost of sales and low variable cost per occupied room, whereas F&B carries food and beverage cost of roughly 25-35% plus heavy payroll.
Q: How is an allowance treated in the accounts, and what control does it need? A: It is a deduction from revenue, not an expense, and needs a signed voucher with the reason and a manager's approval; allowance volumes are reviewed because they are an easy route for fraud.
Q: Compute the cost of food consumed if opening stock is ₹4,00,000, purchases ₹12,00,000, closing stock ₹3,50,000 and staff meals ₹60,000. A: 4,00,000 + 12,00,000 − 3,50,000 − 60,000 = ₹11,90,000.
Q: What GST applies to a room sold at ₹6,500 and at ₹12,000? A: On the current structure, ₹6,500 falls in the up-to-₹7,500 band at 5% without input tax credit; ₹12,000 attracts 18% with ITC. GST rates are revised often, so the live notification should be checked.
Q: A guest from Delhi stays in your Mumbai hotel - is it IGST or CGST plus SGST? A: CGST plus SGST of Maharashtra, because the place of supply for accommodation is the location of the property.
Q: What does the Hubbart formula do, and what is its weakness? A: It works backwards from the owner's required return to the average room rate needed; its weakness is that it ignores the market - the rate it produces may be unachievable, and it assumes a given occupancy.
Q: Why is a hotel's break-even occupancy so important? A: Because fixed costs dominate, so profit swings sharply with occupancy; knowing the break-even point sets the floor below which discounting destroys profit.
Q: What is GOPPAR and why is it preferred over RevPAR by owners? A: Gross operating profit per available room; it shows whether revenue actually converted into profit, so a RevPAR gain achieved through costly channels or heavy F&B discounting is exposed.

Common mistakes

Including complimentary and house-use rooms in the divisor for ADR, or excluding them from occupancy - the treatment is opposite for the two measures.
Dividing by rooms sold instead of rooms available for RevPAR, which simply reproduces ADR.
Forgetting to deduct out-of-order rooms from rooms available, which understates occupancy.
Treating an allowance or rebate as an expense instead of a reduction of revenue, and similarly treating a paid-out (VPO) as a cost rather than a guest charge.
Charging utilities, maintenance or marketing to a department in a USALI statement and so reporting a wrong departmental profit; and stopping the statement at "net profit" when the question asked for GOP.
Mixing up cost of food *purchased* with cost of food *consumed*, or ignoring transfers between kitchen and bar and staff meals.
Quoting a GST rate on the rack/declared tariff when the tax is on the transaction value - and quoting an outdated slab; the declared-tariff test for the restaurant rate was itself replaced by the "specified premises" test from 1 April 2025.
Using the Hubbart formula's output as the actual rate without a market reality check, or dividing by rooms available rather than rooms expected to be sold.