Solutions Manual for Accounting Essentials for Hospitality Managers 3rd Edition By Chris Guilding Updated 2026/2027

Accounting Essentials for Hospitality Managers, 3e Chris Guilding
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Solutions – Accounting Essentials for Hospitality L L L L L




Managers (3rd edition) L L L




CHAPTER 1 L




Introduction
Problem 1.1: Solution L L




a) Functional interdependency exists when the performance of one functional area is
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affected by the performance of a separate functional area. For example, in a hotel complex
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that is dominated by a casino, the success of the rooms and food and beverage departments
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will be affected by the success of the casino operations in attracting clients to the complex.
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b) Functional interdependency is an important issue for the designers of a hotel’s system of
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accountability because care should be taken to hold a manager accountable for only those
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aspects of the hotel’s performance that he or she can influence. For example, the heads of
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rooms and food and beverage departments should not be held accountable for a decrease in
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their room sales if it is caused by reduced casino activity.
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Problem 1.2: Solution L L




a) The four main dimensions of sales volatility in the hotel industry are:
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1. economic cycle induced sales volatility, L L L L



2. seasonal sales volatility, L L



3. weekly sales volatility, L L



4. intra-day sales volatility. L L




b) The implications that these dimensions of sales volatility carry for hotel accounting
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systems are as follows:
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1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic
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conditions highlights the importance of hotels carefully forecasting economic cycles as
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part of the annual budgeting process.
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2. Seasonal sales volatility: Three accounting implications arise:
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• Seasonal sales volatility can be so severe to warrant temporary closure for some L L L L L L L L L L L L



resort properties. This possibility of having to make a closure decision signifies that
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cost and revenue data should be recorded in a manner that will enable a well
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informed financial analysis of the pros and cons of closing.
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• Seasonal sales volatility can also pose particular cash management issues. DuringL L L L L L L L L L



the middle and tail-end of the busy seasons, surplus cash balances are likely to
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result, while in the off-season and the build up to the busy season, deficit cash
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balances are likely to result. Careful cash budgeting will therefore need
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to beconducted. L L L




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,Accounting Essentials for Hospitality Managers (C. Guilding)
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Seasonal sales volatility will also affect price discounting decisions. To ensure such
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decisions are well informed, careful forecasting as part of the annual budgetary
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process, will have to be conducted.
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3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform
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management’s decision making with respect to the amount and timing of room rate
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discounting, staffing needs as well as restaurant purchasing needs.
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4. Intra-day sales volatility: Intra-day demand volatility has led to widely-used pricing
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strategies such as “early bird specials” in restaurants and “happy hours” in bars. Records
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concerning demand at different times of the day will have to be maintained in order to
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inform such hotel pricing issues.
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Problem 1.3: Solution L L




Examples of business decisions requiring the use of financial accounting data include:
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(a) A bank manager deciding whether to lend money to a company.
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(b) A shareholder deciding whether to sell her shares due to a fear that the company
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she has invested in might go bankrupt.
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(c) A potential shareholder thinking about purchasing shares in a company
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andinterested in determining if the company is profitable.
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Examples of business decisions requiring the use of management accounting data include:
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(a) Determining whether accounts are being collected on time. L L L L L L L



(b) Determining whether the business will have sufficient cash over the next year to L L L L L L L L L L L L



avoid the need to arrange a line of credit.
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(c) Determining whether a drinks vending machine or a confectionary L L L L L L L L



vendingmachine should be installed in a hotel’s foyer area.
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(d) Determining what room rate to charge to achieve a target level of profit. L L L L L L L L L L L L



(e) Determining whether a seasonal hotel should be closed down during the L L L L L L L L L L



quietseason. L L



(f) Determining whether a restaurant manager is performing well. L L L L L L L




Problem 1.4: Solution L L




a) High product perishability signifies that an item cannot be held in inventory for sale at a
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later time. Food items have a limited life in inventory because of their rapid physical
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deterioration. Room nights and conference facilities cannot be placed in inventory because
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they relate to a particular time period that expires.
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b) The absolute perishability of rooms, conference and banquet facilities and the relative
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perishability of food underlines the importance of accurate hotel demand forecasting as part
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of the budgeting process. Generally, the most important aspect of forecasting is room
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occupancy, as room sales drive sales levels of other hotel services. Accurate restaurant
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forecasting provides the basis for maintaining a full menu of options while also minimising
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the cost of food wastage.
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,Accounting Essentials for Hospitality Managers (C. Guilding)
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Problem 1.5: Solution L L




Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
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considerable investment in fixed assets such as buildings on prime land as well as extensive
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furnishings, fittings and equipment. This investment generates high rent and depreciation
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costs, which together with significant salary costs, result in a high fixed cost structure for
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hotels.
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Problem 1.6: Solution L L




a) Major hotel activities include room housekeeping, restaurant food preparation and
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service as well as bar service. Despite the advent of the machine and computer age, the
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physical aspect of all of these activities has changed little over the last fifty years, as they
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continue to have a high labour component.
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b) High labour intensive activities in hotels signifies the importance of performance
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measures that focus on labour productivity. Such performance indices include restaurant
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covers per employee hour worked and restaurant sales per employee hour worked.
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Monitoring differences between actual labour cost and budgeted labour cost represents
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another dimension of labour cost management. An appropriate analysis of the difference
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between budgeted and actual labour cost enables a distinction to be drawn between labour
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rate and labour efficiency factors.
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Problem 1.7: Solution L L




Financial accounting concerns the preparation of financial reports for external users such as
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shareholders, banks and government authorities. In order for these financial reports to be
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meaningful, it is important that they are produced in a standardised way and are seen to be
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reliable. Management accounting concerns the provision of financial information to
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internal management. This information is designed to help managers in their
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Ldecisionmaking and control of businesses. Financial information sought by hotel managers
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includes determining the cost of providing a meal to inform the menu pricing decision,
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determining how many delegates need to attend a conference in order to achieve break even,
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and determining what level of profit is made by each selling unit of a hotel to inform any
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rationalisation decision to drop a unit. The provision of all these types of financial
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information falls within the scope of management accounting.
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Problem 1.8: Solution L L




The main accounting information users are:
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• Managers within the company being accounted for. Managers use accounting L L L L L L L L L



information in planning and controlling business activities.
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, Accounting Essentials for Hospitality Managers (C. Guilding)
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• Outside parties such as shareholders, potential shareholders, creditors and
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government agencies. These parties use accounting information to make investing,
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lending, taxing and regulatory decisions.
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Problem 1.9: Solution L L




Accounting reports represent the main source of information that the investing community
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uses when attempting to make wise equity investments. A lack of confidence in accounting
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systems is bound to translate into a reluctance to invest in companies. This will inhibit the
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ability of economically viable companies to expand, which in turn will carry negative
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implications for employment, availability of goods and services, and our standard of living.
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It is critically important that a reliable financial accounting system that engenders trust and
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encourages corporate development is established, otherwise economic activity suffers.
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Problem 1.10: Solution L L




Any of the elements referred to in Box 1.3 could be used as an answer to this question.
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Problem 1.11: Solution L L




Amongst the advantages deriving from the USALI are the following:
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• it can save on accounting system design costs as it represents a “blueprint”
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accounting system that can be adopted by any business in the hotel industry,
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• the system can be viewed as “state of the art” as it benefits from the accumulated
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experience of the parties that have contributed to the system’s development over
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many years, L L



• by promoting consistent account classification schemes as well as formatting of
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reports, it facilitates comparison across hotels,
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• it represents a common point of reference for hotels within the same hotel group.
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Problem 1.12: Solution L L




3 main organizational forms and their main differences
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Characteristics Sole proprietorship L Partnership Company
Number of owners L L One Two or more L L Generally many L




Business size L Small Generally small L Larger and can be very L L L L


large
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Key decision makers
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Owner liability L Unlimited Unlimited Limited

Organisation life L Limited Limited On-going


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