Post by Michael Palloto, Regional Controller, Hospitality Ventures Management Group
Before you are able to speak to the accounting relationship between the Front and Back Office systems, it is important to understand what defines the Front and Back offices within a hotel operation. These terms, in their simplest form, describe the part of the building where people work.
Front Office
The Front Office function is to act as the public face of the hotel and is widely thought of in the industry as the NERVE center for the hotel. Front-office staff welcomes guests, carry their luggage, help them register, give them their room keys, answer any questions, and check them out upon departure. These guest-related services are critical to a hotel’s long term success by creating direct, positive Guest Satisfaction and long-term guest loyalty.
The financial success of the hotel is very dependent on the Front Office. On a daily basis, they are responsible for making sure all in-house guest charges are recorded to the guest’s folio and a credit check is done on each guest account to ensure proper payment is received upon checkout.
In summary, the Front Office system accounts for all of the current and future guest front line charges in a hotel.
Back Office
The Back Office in a hotel is where tasks dedicated to running the company itself take place. Members of the Back Office are the administrative employees who typically do not have direct daily interaction with hotel guests such as Accounting, IT, Human Resources, Sales and Engineering departments. These employees have an indirect contribution to Guest Satisfaction by managing the financial and physical health of a hotel.
In Summary, the Back Office system accounts for the overall financial health of the hotel through the proper recording of guest and hotel revenues, employee wages and benefits and daily operating expenses.
Despite their differences, the Front and Back Offices are closely intermingled, both working together for a common goal…Guest Satisfaction.
Accounting Correlation
By definition, Correlation refers to the statistical relationship between two sets of data. The relationship between the Front and Back Office systems are very definable but are unknowingly misunderstood. They are definable in that all revenue and adjustments that are posted in the Front Office system are ultimately recorded in the Back Office system to help create the hotel’s financial statements.
Where they are misunderstood is that an equal transaction in the Front Office system is an opposite transaction in the Back Office system. A simple example…the daily recording of guest revenues in the Front Office system appear on a guest’s folio as a charge to the guest, or a debit transaction. Conversely, that same revenue is recorded as a credit transaction in the Back Office system.
When a guest settles or pays their bill upon checkout, in the Front Office system, their credit card is Credited to their guest folio, offsetting the initial charges posted to the guest’s folio, bringing the guest account to a zero balance in the Front Office system. Those credit card charges then get recorded in the Back Office system as a receivable or Debit entry on the hotels’ balance sheet, waiting for the receipts to be collected by the bank. Once payment is received, the hotel records a debit to the bank account and a credit to the credit card receivable, perfectly accounting for the guest’s stay.
There are many more variables to hotel accounting and at times, it is much more complex, but the basic premise is the same between the two systems…Debits equal Credits and Credits equal Debits.