What is hotel accounting?

Hotel accounting is a system designed to track and manage a hotel’s finances – income, expenses and financial performance – to ensure profitability, compliance and operational efficiency.

Hotel accounting can either be taken care of in-house, whether by an owner, worker or dedicated team, or outsourced to an accounting professional. Most small hotels will opt for the latter, as in-house professionals are expensive, and accounting is a complex exercise where mistakes can lead to serious consequences. Nevertheless, an independent hotelier can still gain a decent level of control over their accounting practices, even when they outsource to a professional.

In this guide we’ll take a closer look at accounting for hotel industry businesses including the best hotel accounting software, and whether you should be taking care of it yourself, advertising for hotel accounting jobs, or capitalising on third-party hotel accounting services.

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How important is having an accounting protocol in a hotel?

It’s critical that your hotel has a set of rules and procedures that govern how financial transactions are recorded, reported and managed. This ensures consistency, accuracy and compliance with all relevant accounting rules and regulations.

For small, independent hotels, accounting protocols and systems are often set by accounting firms brought in to take care of your tax and regulatory responsibilities.

Examples of hotel accounting reports

A simple way to gain a clearer understanding of the basics of hotel accounting is with examples of common hotel accounting reports. Here are three simplified examples of the most commonly used reports.

Income statement

Also known as the profit and loss statement, this report summarises a hotel’s revenues and expenses, then determines the profits or losses over a specific period. An example of a monthly income statement for the month of September:

CategoryAmount ($)
Revenue
Room sales50,000
Food and beverage sales15,000
Other services5,000
Total revenue70,000
Expenses
Staff salaries25,000
Utilities (electricity, water, etc.)5,000
Maintenance and repairs2,500
Marketing and promotions1,500
Food and beverage costs7,000
Other operational costs3,000
Total expenses44,000
Net profit26,000

Balance Sheet

A balance sheet provides a snapshot of a hotel’s financial position at a specific point in time, by listing the hotel’s assets (what it owns), liabilities (what it owes), and equity (the owner’s investment). As of 30 September our hypothetical hotel’s balance sheet looked like:

CategoryAmount ($)
Assets
Cash10,000
Accounts receivable5,000
Property (building value)200,000
Equipment and furniture25,000
Total assets240,000
Liabilities
Accounts payable8,000
Loans (property mortgage)150,000
Other debts10,000
Total liabilities168,000
Equity
Owner’s equity72,000
Total liabilities and equity240,000

Cash flow statement

A cash flow statement details the inflow and outflow of cash over a specific period, and can reveal how well the hotel manages its cash. It breaks down cash flows into operations, investments and financing activities, which can help to assess liquidity and financial health. An example for the month of September:

CategoryAmount ($)
Cash inflows
Cash from room sales50,000
Cash from food and beverage sales15,000
Other cash inflows3,000
Total cash inflows68,000
Cash outflows
Staff salaries25,000
Utility payments5,000
Loan repayments3,500
Food and beverage purchases7,000
Maintenance and repairs2,000
Other expenses4,000
Total cash outflows46,500
Net cash flow21,500

Another common report is a night audit, which sees a member of staff summarise all the financial activities that have occurred at your property at the end of every day.

hotel accounting

Basic hotel accounting procedures

What are hotel accounting procedures? And what do basic accounting procedures involve? To find out, let’s review a few of the most important hotel accounting systems and considerations.

Ensuring compliance

While accounting and tax compliance will look different from country to country and region to region, tax documents you may need to provide to comply with rules and regulations could include:

  • Tax registration and identification: Tax Identification Number (TIN) or equivalent, business registration certificates.
  • Income and financial records: Profit and loss statements (income statements), balance sheets, general ledgers, bank statements, receipts and invoices for income and expenses.
  • Employee-related tax documents: Payroll records, employee tax forms (e.g., W-2, W-4 in the US, PAYE records in the UK/NZ), social security, pension, retirement contributions, employment contracts and benefits records.
  • Sales and revenue-related tax documents: VAT/GST/sales tax returns, documents on hotel/room occupancy taxes, tourism levies, merchant transaction reports for card payments.
  • Property-related documents: Property tax bills and payments, depreciation schedules for hotel assets (building, equipment, etc.), mortgage or loan interest statements.
  • Capital gains/investment-related documents: Documents for the sale of property or assets, capital gains tax records, investment or financing agreements.
  • Other deductible expenses: Utility bills, marketing and advertising receipts, maintenance and repair costs, insurance policy documents.

Managing costs

To manage your costs, you first need to understand those costs, which can vary greatly from hotel to hotel, as can the percentage of revenue that is allocated to various cost categories. Here is a general breakdown of common expense categories as a percentage of total revenue:

  • Staff and labour costs: 30%–40%
  • Food and beverage costs (for hotels with restaurants): 10%–15%
  • Supplies for housekeeping, the kitchen and guest amenities: 5%–10%
  • Utilities, such as electricity, water, heating, internet): 4%–6%
  • Property maintenance and repairs: 3%–6%
  • Marketing and advertising: 3%–6%
  • Administrative and general (sundry) expenses: 6%–10%
  • Debt servicing and loan repayments: Varies

These cost percentages offer a rough guideline, but your actual numbers may differ greatly, reflecting your unique situation and financial objectives.

Financial planning and forecasting

The key to financial planning and forecasting? Budgeting. By crafting a budget, you establish a path to profitability for your hotel and give yourself financial guardrails to work within. A basic annual budget for a hotel will encompass three main categories: revenue, expenses and expected profit. It might look something like this:

Total estimated revenue (consider all the following categories)

  • Room revenue: Estimated based on occupancy rates and average daily rate (ADR), using the following formula: number of rooms × occupancy rate × ADR × 365 (days)
  • Food and beverage sales: Revenue from restaurants, bars or catering at events.
  • Additional services revenue: Income from parking, your day spa, tours, events, etc.
  • Miscellaneous income: Sales from gift shops, vending machines or rental spaces.

Total estimated expenses (consider all the following categories)

Consider the costs listed in the section above (labour costs, operational costs, food and beverage, office supplies, maintenance and repairs, marketing, insurance), and calculate your estimated annual expenses for each category. Add all the expense categories together to get your total estimated expenses for the year.

Profit estimation

Calculate the profit that you expect to make (or the losses you expect to accrue) using the numbers you have calculated.

Gross profit = total revenue – total expenses

Net profit = total revenue – (total expenses + taxes + debt servicing)

Maximising revenue

Hotel accounting gives you the information and insights you need to maximise your revenue. The best hotel management accounting software boosts profits through practices like forecasting, dynamic pricing, direct bookings and streamlined inventory management.

These practices can increase your occupancy rate, by ensuring maximum visibility across more booking channels. They can increase your average daily rate (ADR), by ensuring your prices always reflect the level of market demand. And they can lower your costs, with direct bookings allowing you to sidestep the 15%-25% commission fees charged by OTAs.

How hotel accounting software works

Software for hotel accounting should be powerful and capable yet easy to use (be very wary of any hotel accounting software free downloads.)

These tools automate financial management tasks by tracking revenue, expenses and transactions. Hotel back office accounting software brings all your financial data together, allowing it to be managed by a third party, or by a single professional or an accounting department in a hotel. The software generates key reports and handles invoicing, payroll, taxes and inventory.

Your hotel accounting software should integrate with your property management system (PMS), as this ensures these two critical tools can share information about guest bookings and payments. 

And if you choose Little Hotelier, the all-in-one software designed specifically for small, independent hotels, you can be confident that your accounting software will connect seamlessly with your property management system.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of Little Hotelier, the all-in-one software solution purpose-built to make the lives of small accommodation providers easier. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at Little Hotelier. Through content, Dean aims to provide education, inspiration, assistance, and, ultimately, value for small accommodation businesses looking to improve the way they run their operations (and live their life).