Basic

Business
Consideration
Topics
Business concept
Four factors of production
Types Business
Business Motive of going into
business
Issue on Social Responsibility
Organizational Forms
Topics
The accounting implications of
key hospitality industry
characteristics
The nature of accounting
Ways hospitality managers
become involved in accounting
Uniform System of Accounts for
the Lodging Industry
 Business

Is the process of producing

goods and services and then
distributing them to those
who desire or need them.
Factors of Production
1. Natural resources

2. Labor

3. Capital

4. Entrepreneurship
Types of Businesses

1. Manufacturing

2. Merchandising or Trading

3. Service
Manufacturing Business

Company Product

General Motors Cars, trucks, vans

Intel Computer chips
Nike Athletic shoes and apparel
Coca-Cola Beverages
Sony Stereos and television
Merchandising Business

Company Product

Wal-Mart General merchandise

Toys R Us Toys
Amazon.com Internet books, music, video
retailer
 Service Business

Company Product

Disney Entertainment
Victory Liner Transportation
Hotel Roma Hospitality and lodging
Motives of going into Business

PROFIT
Sales or Revenues xx
Less: Cost of goods/services sold (xx)
Gross Profit xx
Less: Selling and administrative expenses (xx)
Net Profit xx
 Profit

vs

Social Responsibilities
There are three types of
business organizations

Proprietorship
Partnership
Corporation
 Advantages Disadvantage
Ease in organizing Limited source of
Low cost of financial resources
organizing Unlimited liability

A proprietorship
is owned by one
individual.
A partnership is
owned by two or
more individuals.
 Partnership Characteristics
The partnership is a voluntary association of individuals
based on a legally binding contract.
A partnership has mutual agency where each partner
acts on behalf of the partnership when engaging in
partner business.

The partnership is a limited life dependent upon the

partnership contract.
The partners have unlimited liability making each
partner individually liable for all partnership liabilities.
Partner assets are co-owned by the partners.
 Partnership
Advantages Disadvantages

The combination of the skills and Mutual agency.

resources of two or more
individuals.

Partnerships are easily formed and Unlimited liability.

relatively free from governmental
regulations and restrictions.

Decisions can be made quickly on Limited life.

substantive matters affecting the
firm.
 A corporation is
organized under state
or federal statutes as a
separate legal entity.

J & M, Inc.
 ADVANTAGES DISADVANTAGES

Separate legal existence

Limited liability of Corporation management

stockholders separation of ownership
and management
Transferable ownership
rights

Ability to acquire capital Government regulations

Continuous life

Corporation management Additional taxes

professional managers
The Hospitality
Business
An Overview
 Lodging
1. Service Level
2. Location
3. Types of guest
4. Affiliation
Hotels
1. transient
2. residential
3. resort
 Peculiarities of
Operations in Hotel
Industry
1. Asset Peculiarities
2. Ownership
peculiarities
Asset Peculiarities
8% Current Assets
90% Non- Current
assets (net of
depreciation)
2% Other assets
 Hotel Revenue
64.1% Rooms
19.5% Food
5.1% Beverage
7.0% Other Departments
2.5% Telephone Department
1.8% Rentals and Other
Income
 Hotel Costs and Expenses
44.9% Salaries, Benefits
and Meals
30.0% Operating Expenses
11.0% Cost of Sales
5.5% Energy Costs
8.6% Taxes, Management
Fees, Insurance
Ownership peculiarities

Sole Proprietorship
Partnership
Corporation
 Restaurants and
Food Services
1. Concept
2. Level of Service
3. Menu Range
Peculiarities of Operations
in Restaurants and
Food Services
1. Asset Peculiarities
2. Ownership
peculiarities
 Asset Peculiarities
45% Current Asset
40% Non- Current
Assets (net of
depreciation)
15% Other assets
Restaurant Revenues
Food
Beverages
Miscellaneous such
as souvenir sales,
cigars, candy
 Restaurant Costs and Expenses
Direct Expenses
Cost of food and beverages
Labor (kitchen help, waiters,
bar help, checks, cashiers)
Payroll taxes (SSS premium,
insurance, contribution)
Employees meals
 Indirect Expenses
Food preparation ( laundry and
uniforms, fuels for cooking, electricity,
utilities, menu, flowers, music,
advertising, licenses and taxes, cleaning
supplies, ice and refrigerator, sundry
supplies)
Service of food (silverware, kitchen
utensils, linen, repairs)
Non-food and incidental costs of fixed or
charge (rent, interest, insurance,
depreciation, amortization)
Ownership peculiarities

Sole Proprietorship
Partnership
Corporation
Accountings Role
in Business
The Purpose of Accounting in
the Hospitality Industry
Accounting in the hospitality
industry is utilized every time
a guest purchases food,
beverages, or a hotel guest
room.
The American Accounting
Association defines
accounting as the process
of identifying, measuring, and
communicating economic
information to permit
informed judgments and
decisions by users of the
information.
Accounting
refers to the bookkeeping
methods involved in making
a financial record of business
transactions and in the
preparation of statements
concerning the assets,
liabilities, and operating
results of a business.
Accounting reports, called
financial statements,
provide summarized
information to the users.
 Financial Statements

Income statementA
summary of the revenue
and expenses for a
specific period of time.
Financial PositionA list
of the assets, liabilities,
and stockholders equity
as of a specific date.
Statement of cash flows
A summary of the cash
receipts and
disbursements for a
specific period of time.
 Statement of financial Position
are Assets, Liabilities, and
Equity
are used to track the changes in
value of things you own or owe
For more financial detail,
lenders, investors, shareholders
and others look into a hotels
balance sheet
 The balance sheet serves
to summarize a hotels
financial situation on a
given date, and serves as a
financial snapshot of
the current state of assets,
liabilities and equity
 Statement of Financial
Position
Assets - What you own
Liabilities -What you owe
Equity - What has value
 Wilson Family Inn
Statement of financial Position
As of Dec 31, 2010
Assets Liabilities
Cash 35,000 Accounts 12,000
payable
Cleaning 2,500 Salaries 4,500
supplies payable
Linen 1,100 Taxes payable 2,000

FF&E 250,000 Notes payable 295,00

Land 55,000 Total 313,500

Liabilities
Building 106,000 Owners
Equity
Office 400 Wilson, 136,500
Supplies capital
Total Assets 450,000 Total equity 450,000
and liability
 Income and Expense Accounts
Income is the payment you receive. It
will always increase the value of your
Assets and thus your Equity
Expense is money you spend to purchase
goods or services. It will always decrease
your Equity
- If you pay for the expense
immediately, you will decrease your
Assets
- If you pay for the expense on credit,
you will increase your Liabilities
Income and Expense Accounts
are used to increase or decrease
the value of your accounts
allow you to change the value of
these accounts
Balance Sheet accounts
simply track the value of the
things you own or owe
 Income Statement
( Profit and Loss Statement )
Income:
Funds you receive
Expenses:
Funds you spend
Profit / Surplus or Loss
 Statement of Cash
Flows
Its purpose is to show
where cash flow came
from and where it
went during a period
of time.
 Three major sections of the
statement:
Operating activities
Investing activities
Financing activities
Recent accounting scandals
have placed a premium on a
companys ability to earn
cash flows.
 Statement of Cash Flows
Cash Flows from Operating
ActivitiesThis section reports a
summary of cash receipts and cash
payments from operations.
Cash Flows from Investing
ActivitiesThis section reports the
cash transactions for the acquisition
and sale of relatively permanent
assets.
Cash Flows from
Financing ActivitiesThis
section reports the cash
transactions related to
cash investments by the
owner, borrowings, and
cash withdrawals by the
owner.
 Relationship of
Financial Statements
 Relationship Between Statement
of financial Position and Income
Statement
Assets used to generate
revenue and cash flow:
For a hospitality
business this is land,
building, and equipment.
 Liabilities are related to
expenses.
Accrued wages and accounts
payable
Retained earnings will increase
with net income, less any
dividends declared.
This is the link to the income
statement.
 Bookkeeping Accounting
Involves only Involves
the recording identifying,
of economic recording,
events and
Just one part communica
of the -ting
accounting economic
process
events
 Users of Accounting
Information

Business Stakeholders

Internal Users
External Users
Figure 1.1 Branches and Purpose of Accounting

Branch Purpose
1. Financial Record financial transactions

2. Cost Identify and control costs

3. Tax Compute taxes due

4. Auditing Verify accounting data and

procedures
5. Managerial Make management decisions using
accounting information
 Processing
Accounting
Information
 What is a business
transaction?
A business transaction is an
economic event or condition
that directly changes an
entitys financial condition or
directly affects its results of
operations.
 Accounting Process
1. Identification (Select
economic events/transactions)

2.Recording (Record, classify,

and summarize)

3. Communication (Prepare
reports; analyze and interpret)
Generally Accepted Accounting
Principles (GAAP)
Are general statements
or rules and
procedures that
serve as guides in the
practice of accounting.
*the accounting principles are
derived from business practice,
opinions of the accountants,
pronouncements of professional
bodies like the PICPA, and from
regulations from government
bodies like SEC, the BIR and the
Central Bank.
 Basic Accounting Concepts,
Assumptions and Principles
ASSUMPTIONS PRINCIPLES

1. Economic Entity 1. Cost

2. Conservatism
2. Going Concern
3. Objectivity
3. Time Period
4. Realization
4. Monetary Unit
5. Matching

6. Materiality

7. Consistency

8. Full Disclosure
 ASSUMPTIONS
1. Entity Concept
The transactions of
different entities should not
be accounted for together.
Each entity should be
evaluated separately.
2. Going Concern
Based on this
assumption, it is
expected that the
business is a
continuing concern or
that it has an indefinite
With the going concern
principle, the properties
are recognized at COST
without regard to the
change in their market
values in subsequent
periods.
3. Time Period
-An entitys life can be
meaningfully subdivided into
equal time periods for reporting
purposes.
-This assumption recognizes
that timely financial reports
must be made to those who need
the information in these reports
4. Monetary Unit
All business transactions are
measured and recorded using only
one unit of measurement. Since
money is used as a medium of
exchange, it is therefore the most
practical unit of measuring financial
data. In accounting, only data
measurable in terms of money are
recognized and recorded in its books.
 PRINCIPLES
1. Cost
Assets should be
recorded based on cost
which is the amount
exchanged at the time the
item was acquired.
2. Conservatism
When equally correct
accounting alternatives are
available for recording or
reporting a transaction, the
alternative with the least
favorable outcome for the
business in the current period
should be chosen
 3. Objectivity
It states that all business
transactions must be
supported by objective
evidence proving that the
transaction did in fact
occur
 4. Realization
States that revenue
resulting from business
transactions should be
recorded only when a sale
has been made and earned
5. Matching
The entitys operational
efforts(expenses) be
matched to the entitys
operational
accomplishments (revenues)
 Accounting Methods in
determining where to record the
results of a business transaction
Cash Basis Accounting
Recognize revenue or expense
when cash received
Accrual Basis Accounting
-Recognize revenue when earned
-Recognize expense when incurred
6. Materiality
Material events must
be accounted for
according to
accounting rules.
Materiality depends on the
size of the item or error judged
in the particular circumstances
of its omission or misstatement.
Information is material if its
omission or misstatement could
influence the economic decisions
of users taken on the basis of the
financial statements
7. Consistency
Once an accounting
method has been adopted,
it should be consistently
followed from period to
period in order for
accounting information to
be comparable
8. Full Disclosure
It requires that the financial
statements of a business should
be complete and should report
sufficient economic
information relating to the
business entity to make the
statements understandable
 The Accounting Equation

Assets = Liabilities +Equity

The resources owned by a

business
 The Accounting Equation

Assets = Liabilities + Equity

The rights of the creditors,

which represent debts of
the business
 The Accounting Equation

Assets = Liabilities + Equity

The rights of
the owners
 The Accounting Equation

ASSETS=LIABILITIES+EQUITY

Sole Proprietorship
Partnership
Corporation
A transaction
represents the
movement
of money among
accounts
The 5 Basic Accounts
Basic accounting rules
group all finance related
things into 5 fundamental
types of accounts
Everything that accounting
deals with can be placed into
one of these 5 accounts:
Assets - things you own
Liabilities - things you owe
Equity - overall net worth
Income -increases the
value of your accounts
Expenses-decreases the
value of your accounts
Recall Accounting Basics
The accounting equation is the most
basic of all the accounting principles
for the dissemination of information.
It states that:
Assets = Liabilities + Equity
*An asset is an economic resource
*A liability is an economic obligation
*equity is the level of ownership the
owner has in the operation
 Owner-operated hotels would use the
accounting equation most often
An example of the accounting equation used in
a small owner-operated hotel:
Wilson Family Inn
450,000 - 313,500
= 136,500
(assets) (liabilities)
= owners equity
Here, the Wilson family can claim ownership
(or equity) in this operation of 136,500
Illustrative case
Recording Business
Transactions
 Transactions
A transaction represents the
movement of money among
accounts

Whenever you spend or receive

money, or transfer money
between accounts, that is a
transaction
 Accounts

An account keeps track of what

you own, owe, spend or receive

Each account can contain many

sub-accounts up to an arbitrary
number of levels
TERMS
In a manual accounting system,
the general ledger maintains
separate accounts for each type
of accounting transaction.
Account Title

T-Account
 journal includes all
accounting transactions and
is considered the historical
record for a business entity.
- All transactions must be
recorded through a journal entry
that provides specific
instructions in a line-by-line
sequence.
Each line names a specific account
and an amount designated as a debit
or credit function to be posted to
each named account:
1. The journal entry must identify
at least two accounts.
2. The journal entry must show
at least one debit and one credit
entry.
3. Last but not least, the sum of
the debits and credits must be equal.
The Journal
The Ledger
Three Parts of an Account
(1) ACCOUNT TITLE
(Left Side) (Right Side)

(2) DEBIT (3) CREDIT

Total Debits>Total Credits=Debit Bal
Total Credits > Total Debit=Credit Bal
Total Debits = Total Credits = Zero Bal
 Double-entry Bookkeeping
A = L + OE
Asset Liabilities Owners Equity

=
+ - - + + - +

+ Debit Effect + Credit Effect

Account Type

Assets Increase Decrease

Liabilities Decrease Increase

Owners Equity Decrease Increase

 Debits and Credits

Debits on Left
Credits on Right
Debits Must Equal Credits
Double Entry Bookkeeping
Example:

CASH
9/1 Balance 12,000 9/10 2,000
9/5 2,000 9/20 1,000
9/30 Balance 11,000

(Debit Balance)

ACCOUNTS PAYABLE
9/6 3,000 9/1 Balance 6,000
9/21 2,000 9/17 9,000
9/30 Balance 10,000

(Credit Balance)
 Debits and Credits

Debit does not mean

increase or decrease

Credit does not mean

increase or decrease
Asset accounts
debits increase account balances
credits decrease account balances
Liability accounts:
debits decrease account balances
credits increase account balances
Equity accounts
debits decrease account balances
credits increase account balances
Income accounts
debits decrease account balances
credits increase account balances

Expense accounts
debits increase account balances
credits decrease account balances
 Normal Balances

Asset - Debit
Liability - Credit
Equity - Credit
Revenue - Credit
Expense - Debit
 Normal Balances
Other Types of Accounts
Contra Assets - Credit
Accumulated Depreciation
Allowance for Bad Debt
Contra Equity - Debit
Withdrawals
Treasury Stock
 Debit vs Credit
Assets and Expenses have
a normal balance of a
Debit
To increase the balance
Debit
To decrease the balance
Credit
Liabilities, Permanent OE
and Revenues have a
normal balance of a Credit
-To increase the balance
Credit
-To decrease the balance
Debit
Summary
Five account types: Assets, Liabilities,
Equity, Income, Expense
All accounts have a Debit Side and a
Credit Side
Debit Side is the Left Side (Left
Column)
Credit Side is the Right Side (Right
Column)
 Asset and Expense Accounts
-Debits increase, Credits
decrease

Liability, Equity, and Income

Accounts
-Debits decrease, Credits
increase
 The Recording Process

ANALYZE
Business Documents
Business Transactions
(for effects on specific accounts)

RECORD
Journalizing
Transactions entered in a Journal
(book of original entry)

TRANSFER
Posting
Journal Information transferred to
Ledger Accounts
 Journalizing General Journal

Date Account Titles and Explanation Ref. Debit Credit

2008
Sept. 1
1.

Cash 15,000
2.

3. Common Stock 15,000

4. (To record sale of stock)

5.

Key: 1. Enter date in Date Column.

2. Enter debit account title(s) at left margin of Account Titles and Explanation
Column and amounts in Debit Column.
3. Enter credit account title(s) [INDENT CREDIT ACCOUNT TITLE(S)] and
amounts in Credit Column.
4. Enter explanation under account titles.
5. Ref. Column is left blank until posting.
 Analyzing and Journalizing
Transactions
Steps in the Recording Process
Instructions: Analyze and journalize the transactions provided.

Sept. 1 Stockholders Invested $5,000 in his video services corporation.

2 The corporation paid $500 cash for the store rent.

5 The corporation purchased video supplies of $1,000.

9 The corporation purchased video equipment for $12,000 paying $2,000 in

cash and signed a $10,000 twenty-four month 9% note payable.

12 The corporation provided video services and collected cash of $3,000.

15 Declared and paid a $500 cash dived to stockholders.

 Analyzing
General Journal
and Journalizing
Transactions (continued)
Date Account Titles and Explanation Ref. Debit Credit

2008 Cash 5,000

Sept. 1 Common Stock 5,000
(Shares of stock issued for cash)

2 Rent Expense 500

Cash 500
(Paid rent)

5 Supplies 1,000
Cash 1,000
(Paid cash for supplies)

9 Equipment 12,000
Cash 2,000
Notes payable 12,000
(Purchased equipment, paying cash and issuing notes payable)

12 Cash 3,000
Service Revenue 3,000
(Collected cash for services provided)

15 Dividends 500
Cash 500
(Declared and paid a cash dividend)
 Forms of Accounts and Balances
1. Tabular All forms must show increases and
2. Account (or T-Account) decreases to the account in order to
3. Three-Column determine the account balances (amounts
are assumed).
Cash 101

9/1 Bal. + 12,000 Cash

9/5 + 500 9/1 Bal. 12,000 9/10 2,000
9/10 - 2,000 9/5 500 9/20 1,500
9/20 - 1,500
9/30 Bal. 9,000
9/30 Bal. 9,000

Three-Column Account Form

Cash No. 101
Date Explanation Ref. Debit Credit Balance
2008 Balance 12,000
Sept. 1
5 Jl 500 12,500
10 Jl 2,000 10,500
20 Jl 1,500 9,000
30 Balance 9,000

POSTING
 Steps in Posting
Instructions: Post the first two entries recorded in the General Journal.
General Journal
Date Account Titles and Explanation Ref. Debit Credit
Jl
2009 Cash 101 5,000
Sept. 1 Common Stock 340 5,000
(Issued shares of stock for cash)

2 Rent Expense 560 500

Cash 101 500
(Paid rent)

Cash No. 101

Date Explanation Ref. Debit Credit Balance
2009, Sept. 1 Jl 5,000 5,000
2 Jl 500 4,500

Common Stock
No. 340
Date Explanation Ref. Debit Credit Balance
2009, Sept. 1 Jl 5,000 5,000

Rent Expense No. 560

Date Explanation Ref. Debit Credit Balance

2009, Sept. 2 Jl 500 500

 Recording.
Recording Asset, Liability and Equity
Changes

1. Purchasing a Hotel.
Building and Land xx
Cash xx
2. Borrowing Cash.
Cash xx
Notes Payable xx

3.Purchasing Furniture.
Furniture xx
Cash xx
Recording Revenue and Expense
Changes

1. Sold a Room.
Cash xx
Room Sales xx
2. Paid Wages.
Wage Expense xx
Cash xx
Recording Changes in Owners
Withdrawal Account

1. Withdrew Cash From the

Business.
Owners Drawing Account xx
Cash xx
Analyzing Transactions
Identify the various transactions indicated by the information
provided:

1. CASH ACCOUNTS RECEIVABLE

increased.. decreased_________________
2. RENT EXPENSE CASH
increased.. decreased_________________
3. SUPPLIES ACCOUNTS PAYABLE
increased.. decreased_________________
4. EQUIPMENT CASH
increased.. decreased_________________
5. ACCOUNTS RECEIVABLE REVENUE
increased.. decreased_________________
6. DIVIDENDS CASH
increased.. decreased_________________
 Analyzing Transactions
(continued)
Answer:

1. Collection of an accounts receivable.

2. Payment of the current months rent.
3. Purchase of supplies on account.
4. Purchase of equipment for cash.
5. Rendering of services for a customer on account.
6. The declaration of a cash dividend.
 Normal Account Balances
Instructions:
(a) For each account, indicate the normal balance (Debit/Credit).
(b) For each account, indicate how an increase in the account is recorded (DR/CR)

Account Normal Balance Increase in Account

1. Cash (EXAMPLE) DR DR

2. Accounts Receivable

3. Rent Expense

4. Service Revenue

5. Accounts Payable

6. Common Stock

7. Dividends

8. Unearned Revenue

9. Insurance Expense

10. Notes Payable

11. Retained Earnings

Answer:

Account Normal Balance Increase in Account

1. Cash (EXAMPLE) DR DR
2. Accounts Receivable DR DR
3. Rent Expense DR DR
4. Service Revenue CR CR
5. Accounts Payable CR CR
6. Common Stock CR CR
7. Dividends DR DR
8. Unearned Revenue CR CR
9. Insurance Expense DR DR
10. Notes Payable CR CR
11. Retained Earnings CR CR

Note: The normal balance is same as increase to the account.

Consider the following transaction:

A proprietor, Gram Disk, begins a business entity

called the Texana Restaurant on May 1, 2003. He
makes an initial investment of 100,000 cash to
begin operations.

The transaction creates the following balance

sheet equation:
Assets Liabilities Ownership Equity
100,000 -0- 100,000
The entry would be
The journal entry is posted as follows in the ledger
On May 5, 2003, the restaurant owner, Gram
Disk, purchased a former restaurant building for
150,000, paying 45,000 in cash and assuming
a note payable for 105,000 balance owed. In
addition, he purchased 8,000 of food inventory
and 2,000 of beverage inventory for cash. He
purchased equipment
for 12,000 on credit (accounts payable).
These transactions were journalized in a
compound entry, which uses more than two
Gram Disk, Capital (OE)
Debit Credit Balance
100,000 100,000
Journal Entry

Account Titles Debit Credit

Food inventory 8,000
Beverage inventory 2,000
Building 150,000
Equipment 12,000
Accounts payable 12,000
Notes payable 105,000
Cash 55,000
Posting to
Ledger

After posting the journal entry, the balance sheet equation and a
balance sheet become:
Assets = Liabilities + Ownership Equity
217,000 = 117,000 + 100,000


Recording Business Transactions: Example
Mr. Sam Doty opened and incorporated a hospitality consulting
firm during the month of September and provided you with the
following data.

1. Invested 8,000 in his business in exchange for common

stock.
2. Purchased 500 of supplies for cash.
3. Purchased 4,000 of equipment on account.
4. Received 3,000 cash for consulting services.
5. Paid salaries of 800
6. Paid the first months rent of 200.
7. Paid 1,000 owned to a creditor.
8. The corporation paid a dividend of 1,500 in cash to Sam
Doty, the stockholder.
 Answer: Summary of Transactions
Month of September 2008

Assets = Liabilities + Stockholders Equity

Trans- Sup- Equip- Accounts Common Retained

action Cash + plies + ment = Payable + Stock Earnings

(1) +8,000 +8,000 Investment

(2) -500 +500

(3) +4,000 +4,000

(4) +3,000 +3,000 Service

Revenue
(5) -800 -800 Salary Expense

(6) -200 -200 Rent Expense

(7) -1,000 -1,000

(8) -1,500 -1,500 Dividends

7,000 + 500 + 4,000 = 3,000 + 8,000 500

 Accounting for
Merchandising Operations
in Hospitality
 Merchandise Purchase Entries for a Merchandiser
BUYER COMPANY
June 5 Merchandise Inventory 5,000
Accounts Payable 5,000
(To record goods purchased on account, terms 2/10, n/30)

10 Accounts Payable 1,000

Merchandise Inventory 1,000
(To record return of merchandise)

13 Accounts Payable 4,000

Merchandise Inventory 80
Cash 3,920
(To record payment on account within discount period)

Entry if discount is not taken:

July 5 Accounts Payable 4,000

Cash 4,000
(To record payment on account with no discount taken)

FREIGHT TERMS: FOB SHIPPING POINT - BUYER PAYS FREIGHT

July 5 Merchandise Inventory 200

Cash 200
(To record freight charges, terms FOB shipping point)

Note: If freight terms were FOB DESTINATION, the seller company would be responsible for paying the freight charges.
 Revenue Entries for a Merchandiser
SELLER COMPANY
June 5 Accounts Receivable 5,000
Sales 5,000
(To record credit sale, terms 2/10, n/30)

Cost of Goods Sold 2,500

Merchandise Inventory 2,500
(To record cost of merchandise sold)

10 Sales Returns and Allowances 1,000

Accounts Receivable 1,000
(To record return of merchandise)

Merchandise Inventory 500

Cost of Goods Sold 500
(To record cost of goods returned)

13 Cash 3,920
Sales Discounts 80
Accounts Receivable
(To record collection within discount period) 4,000

Entry if discount is not taken:

July 5 Cash 4,000
Accounts Receivable 4,000
(To record collection with no discount taken)

FREIGHT TERMS: FOB DESTINATION - SELLER PAYS FREIGHT

July 5 Freight-out 200
Cash 200
(To record payment of freight on goods sold, FOB destination)

Note: If freight terms were FOB SHIPPING POINT, the buyer company would be responsible for paying the freight charges.
Work Sheet for a Merchandiser
PARTIAL WORK SHEET

Adjusted Trail Income Balance Sheet

Balance Statement

Account Title Dr. Cr. Dr. Cr. Dr. Cr.

Merchandise Inventory XX XX

Sales XX XX

Sales Returns & Allowances XX XX

Sales Discounts XX XX

Cost of Goods Sold XX XX

Procedure:
(1) Merchandise Inventory is extended to the debit column of the balance sheet.
(2) Sales is extended to the credit column of the income statement.
(3) Sales Returns & Allowances and Sales Discounts are extended to the debit column of the
income statement.
(4) Cost of Goods Sold is extended to the debit column of the income statement.
 Front Office Accounting

A front office accounting system monitors and

charts the transactions of guests and businesses,
agencies, and other non-guests using the hotels
services and facilities.
An effective guest accounting system consists of tasks performed
during each stage of the guest cycle.
In brief, a front office accounting system:

Creates and maintains accurate accounting file for each guest or

non-guest account;

Tracks financial transactions throughout the guest cycle;

Ensures internal control over cash and non-cash transactions;

Records settlement for all goods and services provided.

 Accounts Receivable
Types of Accounts Receivable
The Ledger An accounting book, that contains a set of accounts
The Transient Ledger or Front Office Ledger or Guest
Ledger or Rooms Ledger
Where the folios of the current registered guests are kept
It is maintained at the Front Desk
Charges are posted continually, as incurred by guests
Bill is presented to the guest on departure
The City Ledger
Where the folios of of non-registered guests/organizations are
It is maintained in the Accounting Office
Charges are posted periodically and bill is presented for payment
periodically
What is and isnt accounted for
When guests pay cash directly, no accounts receivable is created
 Account integration chart
Cost of sales
Item/Product
Inventory

Customers Revenue
Account Receivable
Suppliers Account Payable
Cash at bank
Room/Board Cash on hand
...
Bank/Credit card ...
...
User/Cashier
...
2.1 Vouchers
(Transactions)

Source Document layer

 Vouchers (Transactions)
Transactions are made out of one or many GSL
Transactions are curried via Vouchers
Vouchers are building blocks of subsystems
There are 39 Vouchers in 5 Subsystems in
CNET_ERP V.5.0
Vouchers are source documents
Will take effect after being issued
Voucher will be further processed to produce
Journal
 Assessment
Owners Equity is comprised of what two
components?
What is the basic law of double-entry
bookkeeping?
What are the first stages of the Accounting
Cycle?