Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Contents
Chapter 1: Hospitality Industry Accounting.................................................4
1.1 Unique Aspects of the Hospitality Industry........................................4
1.2 The Purpose of Accounting in the Hospitality Industry.......................5
1.3 Branches of Accounting......................................................................6
1.4 Why Hospitality Managers Use Managerial Accounting......................7
1.5 The Uniform System of Accounts.......................................................9
1.6 Ethics and Hospitality Accounting....................................................11
Chapter 2: Accounting Fundamentals Review...........................................13
2.1 Bookkeeping and Accounting...........................................................13
2.2 The Accounting Equation..................................................................15
2.3 Recording Changes to the Accounting Equation...............................17
2.4 Generally Accepted Accounting Principles (GAAP)...........................19
2.5 The Hospitality Business Cycle.........................................................21
Chapter 3: THE INCOME STATEMENT.........................................................23
3.1 The Purpose of the Income Statement.............................................23
3.2 Income Statement Preparation.........................................................24
3.3 Income Statement Analysis..............................................................27
Chapter 4: The Balance Sheet...................................................................30
4.1 The Purpose of a Balance Sheet.......................................................30
4.2 Balance Sheet Formats.....................................................................33
4.3 Components of the Balance Sheet...................................................37
4.4 Balance Sheet Analysis....................................................................40
Chapter 5: The Statement of Cash Flows..................................................46
5.1 Understanding Cash Flows...............................................................46
5.2 The Purpose of the Statement of Cash Flows (SCF).........................46
5.3 Sources and Uses of Funds...............................................................48
5.4 Creating the Statement of Cash Flows.............................................55
5.5 Statement of Cash Flows Analysis....................................................59
Chapter 6: Ratio Analysis..........................................................................62
6.1 Purpose and Value of Ratios.............................................................62
6.2 Types of Ratios.................................................................................62
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
6.3 Comparative Analysis of Ratios........................................................68
6.4 Ratio Analysis Limitations................................................................69
CHAPTER 7: FOOD AND BEVERAGE PRICING.............................................72
7.1 Factors Affecting Menu Pricing.........................................................72
7.2 Assigning Menu Prices......................................................................74
7.3 Menu Price Analysis..........................................................................75
CHAPTER 8: REVENUE MANAGEMENT FOR HOTELS...................................78
8.1 Establishing Room Rates..................................................................78
8.2 Revenue Management......................................................................80
8.3 Non-Room Revenue..........................................................................82
CHAPTER 9: MANAGERIAL ACCOUNTING FOR COSTS................................84
9.1 The Concept of Cost.........................................................................84
...............................................................................................................84
9.2 Types of Costs..................................................................................84
9.3 Cost/Volume/Profit (CVP) Analysis....................................................87
CHAPTER 10: FORECASTING IN THE HOSPITALITY INDUSTRY....................91
10.1 The Importance of Accurate Forecasts...........................................92
10.2 Forecast Methodology....................................................................92
10.3 Utilizing Trend Lines in Forecasting................................................94
CHAPTER 11: BUDGETING AND INTERNAL CONTROLS..............................96
11.1 Importance of Budgets...................................................................96
11.2 Types of Budgets............................................................................97
11.3 Operations Budget Essentials.........................................................98
11.4 Developing an Operations Budget..................................................99
11.5 Monitoring an Operations Budget................................................100
11.6 Cash Budgeting............................................................................100
11.7 Managing Budgets Through Internal Control................................101
CHAPTER 12: CAPITAL INVESTMENT, LEASING, AND TAXATION...............102
12.1 Capital Budgeting.........................................................................102
12.2 Capital Investment.......................................................................103
12.3 Financing Alternatives..................................................................104
12.4 Taxation........................................................................................105
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Chapter 1: Hospitality Industry Accounting
1.1 Unique Aspects of the Hospitality Industry
The hospitality industry encompasses a diverse range of service-oriented enterprises, including
hotels, restaurants, resorts, clubs, and other lodging and food service operations. Unlike
manufacturing or retail businesses, hospitality organizations primarily produce intangible
experiences rather than tangible goods. This characteristic significantly influences the way financial
information is recorded, analyzed, and interpreted.
One defining feature of the hospitality industry is its perishability. Rooms that go unsold or tables
that remain empty on a given night represent lost revenue opportunities that cannot be recovered.
This time-sensitive nature of inventory requires managers to monitor performance indicators such as
occupancy rates, average daily rate (ADR), and revenue per available room (RevPAR) to ensure
optimal capacity utilization.
Another distinctive aspect is the high proportion of fixed costs. Hotel operations, for instance, must
maintain facilities, utilities, and staffing levels regardless of short-term fluctuations in demand. This
cost structure amplifies the importance of accurate forecasting and budgeting, as small changes in
revenue can have a disproportionate impact on profitability.
The labor-intensive nature of the industry also shapes its accounting practices. Payroll expenses
often represent the largest single cost category, making labor cost control a central focus of
managerial accounting systems. Additionally, employee turnover rates tend to be high, requiring
consistent attention to training and human resource accounting.
Finally, hospitality organizations often operate across multiple departments and revenue centers,
such as rooms, food and beverages, spas, and events. Each department contributes differently to
overall profitability, necessitating detailed departmental accounting and performance measurement.
Consequently, financial managers in hospitality must integrate both operational and financial data to
make informed decisions about pricing, service offerings, and cost allocation.
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
1.2 The Purpose of Accounting in the Hospitality Industry
Accounting within the hospitality sector serves several critical purposes that extend beyond the
traditional role of recording financial transactions. At its core, accounting provides the informational
foundation for decision-making, control, and strategic planning.
First, accounting supports financial stewardship by ensuring that owners, investors, and other
stakeholders have an accurate picture of an organization’s financial position. Given the capital-
intensive nature of hospitality businesses, investors rely heavily on financial reports such as balance
sheets, income statements, and cash flow statements to assess performance and sustainability.
Second, accounting provides the data necessary for managerial decision-making. In hospitality,
decisions related to pricing, staffing, menu design, and promotional strategies require precise cost
and revenue data. Managerial accounting techniques—such as cost-volume-profit analysis,
budgeting, and variance analysis—allow managers to identify inefficiencies and optimize resource
allocation.
Third, accounting ensures internal control and accountability. Because hospitality operations involve
extensive cash and credit transactions, robust accounting systems are essential for minimizing fraud,
errors, and waste. Effective internal control mechanisms, including segregation of duties and
reconciliation procedures, protect assets and enhance operational integrity.
Fourth, accounting enables regulatory compliance and taxation. Hospitality organizations are
subject to various legal requirements, including sales taxes, payroll taxes, and occupancy taxes.
Accurate accounting ensures compliance with these obligations and reduces the risk of penalties.
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Finally, accounting supports strategic and long-term planning. Through techniques such as capital
budgeting and financial forecasting, managers evaluate the feasibility of new projects, renovations,
or expansions. For example, a hotel may use discounted cash flow analysis to determine whether
building a new conference center will yield an acceptable return on investment. In this sense,
accounting becomes not merely a recording tool but a central component of strategic management
in the hospitality industry.
1.3 Branches of Accounting
Accounting in the hospitality industry is typically divided into several branches, each serving a
distinct purpose within the organization. The three primary branches—financial accounting,
managerial accounting, and cost accounting—operate in tandem to provide a comprehensive view of
organizational performance.
Financial Accounting focuses on the preparation and presentation of external financial statements.
These reports, prepared according to Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS), communicate a company’s financial position and
results to external stakeholders such as investors, creditors, and regulatory agencies. In hospitality,
financial accounting provides a standardized framework for comparing performance across
properties and time periods, facilitating benchmarking and investment decisions.
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Contents
Chapter 1: Hospitality Industry Accounting.................................................4
1.1 Unique Aspects of the Hospitality Industry........................................4
1.2 The Purpose of Accounting in the Hospitality Industry.......................5
1.3 Branches of Accounting......................................................................6
1.4 Why Hospitality Managers Use Managerial Accounting......................7
1.5 The Uniform System of Accounts.......................................................9
1.6 Ethics and Hospitality Accounting....................................................11
Chapter 2: Accounting Fundamentals Review...........................................13
2.1 Bookkeeping and Accounting...........................................................13
2.2 The Accounting Equation..................................................................15
2.3 Recording Changes to the Accounting Equation...............................17
2.4 Generally Accepted Accounting Principles (GAAP)...........................19
2.5 The Hospitality Business Cycle.........................................................21
Chapter 3: THE INCOME STATEMENT.........................................................23
3.1 The Purpose of the Income Statement.............................................23
3.2 Income Statement Preparation.........................................................24
3.3 Income Statement Analysis..............................................................27
Chapter 4: The Balance Sheet...................................................................30
4.1 The Purpose of a Balance Sheet.......................................................30
4.2 Balance Sheet Formats.....................................................................33
4.3 Components of the Balance Sheet...................................................37
4.4 Balance Sheet Analysis....................................................................40
Chapter 5: The Statement of Cash Flows..................................................46
5.1 Understanding Cash Flows...............................................................46
5.2 The Purpose of the Statement of Cash Flows (SCF).........................46
5.3 Sources and Uses of Funds...............................................................48
5.4 Creating the Statement of Cash Flows.............................................55
5.5 Statement of Cash Flows Analysis....................................................59
Chapter 6: Ratio Analysis..........................................................................62
6.1 Purpose and Value of Ratios.............................................................62
6.2 Types of Ratios.................................................................................62
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
6.3 Comparative Analysis of Ratios........................................................68
6.4 Ratio Analysis Limitations................................................................69
CHAPTER 7: FOOD AND BEVERAGE PRICING.............................................72
7.1 Factors Affecting Menu Pricing.........................................................72
7.2 Assigning Menu Prices......................................................................74
7.3 Menu Price Analysis..........................................................................75
CHAPTER 8: REVENUE MANAGEMENT FOR HOTELS...................................78
8.1 Establishing Room Rates..................................................................78
8.2 Revenue Management......................................................................80
8.3 Non-Room Revenue..........................................................................82
CHAPTER 9: MANAGERIAL ACCOUNTING FOR COSTS................................84
9.1 The Concept of Cost.........................................................................84
...............................................................................................................84
9.2 Types of Costs..................................................................................84
9.3 Cost/Volume/Profit (CVP) Analysis....................................................87
CHAPTER 10: FORECASTING IN THE HOSPITALITY INDUSTRY....................91
10.1 The Importance of Accurate Forecasts...........................................92
10.2 Forecast Methodology....................................................................92
10.3 Utilizing Trend Lines in Forecasting................................................94
CHAPTER 11: BUDGETING AND INTERNAL CONTROLS..............................96
11.1 Importance of Budgets...................................................................96
11.2 Types of Budgets............................................................................97
11.3 Operations Budget Essentials.........................................................98
11.4 Developing an Operations Budget..................................................99
11.5 Monitoring an Operations Budget................................................100
11.6 Cash Budgeting............................................................................100
11.7 Managing Budgets Through Internal Control................................101
CHAPTER 12: CAPITAL INVESTMENT, LEASING, AND TAXATION...............102
12.1 Capital Budgeting.........................................................................102
12.2 Capital Investment.......................................................................103
12.3 Financing Alternatives..................................................................104
12.4 Taxation........................................................................................105
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Chapter 1: Hospitality Industry Accounting
1.1 Unique Aspects of the Hospitality Industry
The hospitality industry encompasses a diverse range of service-oriented enterprises, including
hotels, restaurants, resorts, clubs, and other lodging and food service operations. Unlike
manufacturing or retail businesses, hospitality organizations primarily produce intangible
experiences rather than tangible goods. This characteristic significantly influences the way financial
information is recorded, analyzed, and interpreted.
One defining feature of the hospitality industry is its perishability. Rooms that go unsold or tables
that remain empty on a given night represent lost revenue opportunities that cannot be recovered.
This time-sensitive nature of inventory requires managers to monitor performance indicators such as
occupancy rates, average daily rate (ADR), and revenue per available room (RevPAR) to ensure
optimal capacity utilization.
Another distinctive aspect is the high proportion of fixed costs. Hotel operations, for instance, must
maintain facilities, utilities, and staffing levels regardless of short-term fluctuations in demand. This
cost structure amplifies the importance of accurate forecasting and budgeting, as small changes in
revenue can have a disproportionate impact on profitability.
The labor-intensive nature of the industry also shapes its accounting practices. Payroll expenses
often represent the largest single cost category, making labor cost control a central focus of
managerial accounting systems. Additionally, employee turnover rates tend to be high, requiring
consistent attention to training and human resource accounting.
Finally, hospitality organizations often operate across multiple departments and revenue centers,
such as rooms, food and beverages, spas, and events. Each department contributes differently to
overall profitability, necessitating detailed departmental accounting and performance measurement.
Consequently, financial managers in hospitality must integrate both operational and financial data to
make informed decisions about pricing, service offerings, and cost allocation.
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
1.2 The Purpose of Accounting in the Hospitality Industry
Accounting within the hospitality sector serves several critical purposes that extend beyond the
traditional role of recording financial transactions. At its core, accounting provides the informational
foundation for decision-making, control, and strategic planning.
First, accounting supports financial stewardship by ensuring that owners, investors, and other
stakeholders have an accurate picture of an organization’s financial position. Given the capital-
intensive nature of hospitality businesses, investors rely heavily on financial reports such as balance
sheets, income statements, and cash flow statements to assess performance and sustainability.
Second, accounting provides the data necessary for managerial decision-making. In hospitality,
decisions related to pricing, staffing, menu design, and promotional strategies require precise cost
and revenue data. Managerial accounting techniques—such as cost-volume-profit analysis,
budgeting, and variance analysis—allow managers to identify inefficiencies and optimize resource
allocation.
Third, accounting ensures internal control and accountability. Because hospitality operations involve
extensive cash and credit transactions, robust accounting systems are essential for minimizing fraud,
errors, and waste. Effective internal control mechanisms, including segregation of duties and
reconciliation procedures, protect assets and enhance operational integrity.
Fourth, accounting enables regulatory compliance and taxation. Hospitality organizations are
subject to various legal requirements, including sales taxes, payroll taxes, and occupancy taxes.
Accurate accounting ensures compliance with these obligations and reduces the risk of penalties.
, Summary managerial accounting for the hospitality industry 2nd edition lea r dopson hayes 9781119299653
Finally, accounting supports strategic and long-term planning. Through techniques such as capital
budgeting and financial forecasting, managers evaluate the feasibility of new projects, renovations,
or expansions. For example, a hotel may use discounted cash flow analysis to determine whether
building a new conference center will yield an acceptable return on investment. In this sense,
accounting becomes not merely a recording tool but a central component of strategic management
in the hospitality industry.
1.3 Branches of Accounting
Accounting in the hospitality industry is typically divided into several branches, each serving a
distinct purpose within the organization. The three primary branches—financial accounting,
managerial accounting, and cost accounting—operate in tandem to provide a comprehensive view of
organizational performance.
Financial Accounting focuses on the preparation and presentation of external financial statements.
These reports, prepared according to Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS), communicate a company’s financial position and
results to external stakeholders such as investors, creditors, and regulatory agencies. In hospitality,
financial accounting provides a standardized framework for comparing performance across
properties and time periods, facilitating benchmarking and investment decisions.
