While warm hospitality is the heart of every successful property, understanding your business’s financials is just as essential. Strong financials ensure operations run smoothly, empowering you to support your team and deliver memorable guest experiences. Here are the accounting basics every owner should know.
Accounting Reports
Accounting relies on key financial reports that organize the numbers into clear, actionable insights. A modern property management system (PMS) makes accounting data readily accessible, allowing you to monitor your property’s financial health with ease.
Chart of Accounts – The chart of accounts is exactly what it sounds like, a structured listing of all accounts that make up your organization’s financial framework, including income, expenses, equity, assets, and liabilities. It seamlessly feeds information into the general ledger for accurate and efficient financial management.
Profit & Loss – This vital report outlines income and expenses over a defined period, presenting debits and credits side by side for comparison. The final number at the bottom, aka your profit, should be positive. Otherwise, your hotel is losing money.
Trial Balance – A trial balance compiles all debits and credits from each account into a single report. Unlike a profit and loss statement, however, the trial balance is used to identify discrepancies and potential errors. When all entries are correct, the total debits and credits are equal. Generating this document at the end of each reporting period helps make sure your financial records remain precise and reliable.
Balance Sheet – The balance sheet offers a comprehensive snapshot of your property’s financial position, providing a deeper view beyond profit and loss. It details assets, liabilities, and equity—three pillars that define your hotel’s financial health. Assets are categorized as current, such as cash and other easily convertible resources, or non-current, like your building and long-term investments. Similarly, liabilities are divided into current obligations expected to be settled within a year and non-current commitments extending past that timeframe. Assets must equal liabilities plus equity.
General Ledger – The general ledger is the central record of your property’s financial accounts, capturing the balances and activity for each account in your chart of accounts. For hotels, it’s best practice to maintain separate subledgers for each revenue stream (e.g., guest, city, and deposit ledgers) to simplify tracking and analysis. In WebRezPro PMS, the Guest Ledger fulfills this role.
Internal financials like these should be reconciled with bank and credit card statements at least once a month to ensure accuracy and identify any discrepancies.
Double-Entry Accounting
This is the most widely used accounting method, in which each transaction is recorded in at least two of the five account categories mentioned above—income, expenses, equity, assets, and liabilities—as either a debit or credit.
For example, if your hotel purchases a new refrigerator, the transaction would debit your asset account (equipment) and credit either cash (if paid for immediately) or liabilities (if purchased on credit). Each side records the same amount, though one is debited and the other credited.
For asset and expense accounts, transactions are debits if they increase the account’s value. This is switched for liabilities, equity, and income, where transactions that increase value are credits.
As previously stated, a business’s total assets must always equal its liabilities plus its equity, or else there is an accounting error.
Hotel Metrics
The hospitality industry has its own key performance metrics to evaluate financial position. These include:
Average Daily Rate – Your average daily rate (ADR) represents average revenue earned per occupied room over a specific period. It’s calculated by dividing your total room revenue by the number of rooms sold. ADR often shares an inverse relationship with occupancy—the greater your rates, the smaller your potential guest pool. Position rates strategically so that they’re high enough to boost profitability, yet competitive enough to keep rooms in demand.
RevPAR – RevPAR measures average revenue gained for each available room. You find it by dividing your room revenue by the number of rooms, both sold and unsold. Understanding your property’s minimum RevPAR—and ADR—needed for profitability is essential. Once those benchmarks are established, implement pricing and revenue management procedures to consistently stay above them and drive sustainable growth.
TRevPAR – TRevPAR expands on RevPAR by factoring in all revenue streams, not just room sales. With as much as 40 percent of a hotel’s incremental revenue growth coming from ancillary sources, TRevPAR provides a more comprehensive view of performance. It’s derived by dividing total property revenue by the number of available rooms over a given period.
Gross Operating Profit – Gross operating profit (GOP) represents the total earnings your property retains after covering all operating expenses. It’s calculated by subtracting total operating costs from total operating revenue, excluding non-operational expenses such as taxes.
Night Audit
The night audit is a comprehensive financial review conducted at the close of each business day. It includes verifying reservations, no-shows, and cancellations, reconciling transactions, balancing reports, processing payments, generating invoices, and ensuring that all activity is accurately recorded.
Performed overnight—once the previous day’s operations have been officially closed out—this necessary process helps identify and resolve discrepancies before they impact guests or staff. No one likes to see an extra charge on their bill! It also plays a vital role in maintaining compliance with financial regulations.
As with many routine hotel operations, incorporating automation boosts speed and accuracy. Your PMS is critical to this success. A powerful solution like WebRezPro automatically closes out the day and provides clear, real-time reporting that makes daily reconciliation and guest ledger balancing a breeze. You don’t need to rely on coffee and Excel anymore!
Taxes
Tax regulations are complex, and accuracy is essential. Governing bodies carefully review whether payments and filings are completed correctly. To safeguard your property from costly penalties, enlist the expertise of a qualified accountant or reputable tax service. Attempting to manage taxes without proper experience can lead to compliance issues that are far more expensive to fix later.
Timely payments are crucial as missing deadlines can lead to substantial late fees and interest charges. To keep your property’s finances in good standing, respond promptly to any requests from your accountant. These requests are often time sensitive and mandatory for filing accurate, compliant records.
Be careful with goods and services tax (GST) and double check that it’s applied to reimbursements as well. WebRezPro allows hoteliers to create up to four taxes within the system that are automatically attached to the appropriate charges, eliminating human error. In addition, the system records all taxes collected.
Fraud Prevention
Schedule periodic audits of your accounts by an independent party not involved in daily bookkeeping to identify irregularities that may otherwise go unnoticed. Even a single unexplained withdrawal can reveal important insights.
Without sound financial management, you can’t offer a great guest experience—or any guest experience. It’s necessary to understand hotel accounting fundamentals, even if you work with a dedicated professional (which is always recommended). A solid grasp of the basics empowers you to make informed decisions and prevent costly issues down the road.
