Tourism and Hospitality

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The accounting cycle

1. Receive source documents and business transactions

Every time a business transaction occurs (e.g. the business sells food in the restaurant, drinks in the bar, accommodation or pays wages, buys goods and pays the contract cleaner) a record for that transaction is raised at the time. This record is called a source (primary) document and the transaction it supports must by analysed.

Some examples of source documents are:
Receipts, invoices, credit notes, restaurant dockets, guest accounts, purchase orders

2. Enter transactions into journal (Book of prime entry)
The word journal means day book
The transaction recorded on the source documents must be analysed and recorded in the journal.

3. Enter transactions into ledgers (Books of final entry)
After the transaction is journalised it is transferred to an account in a ledger. Recording transactions in a ledger account is called posting. A small business may use one ledger only (General Ledger), while a large property needs subsidiary ledgers, each containing certain types of accounts:
Hotels and motels or any other establishment offering accommodation post to additional ledgers not used by other business:

The "Advanced Deposit Ledger"
The "Guest Ledger" or "Transient Ledger"
The "City Ledger" or "Debtors Ledger"

4. Prepare trial balance
After the posting to accounts is completed, the accuracy of the posting must be established. A list of accounts and their balances is prepared (e.g. all accounts in the Guest Ledger by room number) and added up. The total must equal the daily balance sheet. All other ledgers are balanced in the same manner. Preparing a Trial Balance of the General Ledger to prove that the debits equal the credits completes the process. When all ledgers, including the General Ledger, are balanced reports can be produced.

5. Prepare financial statements
Financial statements are prepared on a regular basis and assist owners and managers. They show how well the business has been operated, whether it made a profit or loss and how much the business owns and owes to other parties.

The Income Statement The income and expenses and the profit or loss of a business is shown in the Income Statement (Profit and Loss Report) for a given period of time
The Balance Sheet The balance sheet shows the financial state of a business at a given date. It lists the value of everything the business owns owes to other parties and it's net worth.

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