Accounting Cycle in Tourism & Hospitality

• The accounting cycle is a structured process for recording and processing financial transactions
• It ensures accuracy and integrity in financial reporting
• It is essential for hotels, resorts, travel agencies, and other tourism-related businesses
• The learning objectives are: to understand the accounting cycle and its relevance in tourism and hospitality, to identify and explain each step in the cycle, and to apply the accounting cycle to tourism and hospitality business scenarios

Steps of the Accounting Cycle

• Identify and analyze transactions
• Record transactions in the General Journal
• Post to the ledger
• Balance Accounts
• Prepare a trial balance
• Prepare financial statements

Step 1: Identify & Analyze Transactions

• Analysis of economic events is done to determine financial operations
• Financial operations must be distinguished between relevant and irrelevant
• Measurable operations must be identified, so the value can be expressed in currency
• Transactions in hospitality include room bookings, restaurant sales, and payroll
• An example is when a guest pays for a hotel stay, which is classified as revenue

Step 2: Record Transactions in the General Journal

• The first formal record of a transaction is created at this step

Conditions for recording transactions in the daily register

• Registration according to the historical sequence of financial transactions
• Following the double entry theory (each transaction is recorded twice for both parties)
• Record the number and date for each transaction
• Provide a full explanation for each transaction
• No modifications are allowed after registration

Step 3: Post to the Ledger

• Transactions are organized into accounts such as Cash, Accounts Payable, and Revenue
• This involves compiling all transactions related to a specific account from the daily journal to the ledger

Step 4: Balancing Accounts

• Compares the debit and credit sides to know the status of the account (i.e. its balance)

Steps of the Balancing Accounts

• Summarize all ledger balances before adjustments
• Collect the largest side of the account
• Transfer the total to the other side
• Determine the remaining balance to be equal to the larger side

Step 5: Prepare Trial Balance

• Ensures revenue and expenses are recorded in the correct period
• It is a list of all the company's accounts listed in the general ledger
• It determines the certainty of records in the ledger and daily book
• Considers the balance of the company's balance is accurate, however it is not fully accurate

Types of Trial Balance

• Trial balance by totals (based on total debits and credits)
• Trial balance by balances (based on individual account balances)
• The total of the debit balances for all accounts must equal the credit balances

Errors Not Detected by the Trial Balance

• Countervailing errors (where a mistake on one side covers a mistake on the other side)
• Errors of omission (such as forgetting to record or not posting an entry)
• Duplication (recording the operation twice in the daily book or ledger)
• Posting to the wrong account
• Technical errors resulting from a misunderstanding of accounting principles

Step 6: Preparing Financial Statements

• Financial statements, such as the income statement, balance sheet, and cash flow statement, are prepared after the trial balance
• A hotel's revenue, expenses, and profits are summarized to give insight into the businesses finances

Recap

• The accounting cycle ensures accurate financial reporting
• Each step plays a role in tracking and manage finances in hospitality

The accounting cycle is essential for financial reporting accuracy, especially in tourism and hospitality businesses. It involves identifying, recording, and analyzing transactions. The cycle ensures the integrity of financial data for hotels, resorts, and travel agencies.