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By Ralph Miller, CPA, CA, CBV, CHAE

The American Hotel & Lodging Educational Institute (EI) interviews Ralph Miller, CPA, CA, CBV, CHA, CHAE, vice chairman of the Financial Management Committee of the American Hotel & Lodging Association, about the Eleventh Revised Edition of the Uniform System of Accounts for the Lodging Industry, available this month from the Educational Institute.

How is the Eleventh Revised Edition different from the Tenth Revised Edition, and why is this so important to the industry?

The primary purpose of the Uniform System of Accounts for the Lodging Industry is to provide operating statements that are formatted to provide hotel owners, managers, and other interested parties with information and data that is pertinent to the unique operating environment of the lodging industry.  The Eleventh Revised Edition of the Uniform System of Accounts for the Lodging Industry was revised to reflect changes in industry practice and to address contemporary industry practices, including but not limited to:

  • Technology updates;
  • Sustainability;
  • Globalization;
  • New Terminology;
  • Cluster Services;
  • Distribution Channels; and
  • Enhanced Ratio Analysis.

The Uniform System of Accounts is referenced in many industry contracts, management agreements, and debt agreements and other documents, the format and terminology of the Eleventh Revise Edition must be followed in order for an operating statement to be presented "in conformity with the Uniform System of Accounts for the Lodging Industry."  The effective date for adopting the Eleventh Revised Edition is for fiscal years beginning January 1, 2015.

The following list highlights the material changes from the Tenth Revised Edition that are incorporated in the Eleventh Revised Edition.

Summary Operating Statement

The following statements highlight the material changes made to the presentation of the Summary Operating Statement.

  • "Rentals and Other Income" has been changed to "Miscellaneous Income."
  • "Revenue" has been changed to "Operating Revenue" and "Total Revenue" has been changed to"Total Operating Revenue."
  • "Information and Telecommunications Systems" has been added as a fifth Undistributed Operating Department (see Part I, Schedule 6).
  • "Fixed Charges" has been changed to "Non-Operating Income and Expenses" (see Part I, Schedule 11).
  • "Net Operating Income" has been changed to "Earnings Before Interest, Taxes, Depreciation and Amortization," commonly called EBITDA.
  • Two Summary Operating Statement formats have been developed:
  • For operators, a Replacement Reserve is deducted from EBITDA, and the bottom line is "EBITDA less Replacement Reserve."
  • For owners, Interest, Depreciation, Amortization, and Income Taxes are deducted from EBITDA, and the bottom line is "Net Income."

Operating Departments

The following statements highlight the material changes contained in the operating schedules.

Multiple Departments

  • In all departments, readers are advised to refer to Part V of the book that provides enhanced guidance on the reporting of revenues and expenses on a gross versus net basis.
  • Additional guidance is provided in each revenue-producing department regarding the handling of surcharges, service charges, and gratuities.
  • Categories have been added to each department schedule to provide additional information regarding Labor Costs and Related Expenses:
  • The aggregated salaries and wages of management and non-management personnel are presented on the department schedule.
  • Service Charge Distribution is presented as a distinct cost category within Salaries, Wages, Service Charges, Contracted Labor and Bonuses. It has been moved from Payroll-Related Expenses-Supplemental Pay.
  • Contracted, leased, and outsourced labor costs are presented independently.
  • New expense categories have been added to account for cluster services and department-specific reservations expenses.
  • Administrative telecommunications expenses are no longer recorded within each department. All administrative telecommunications expenses are now recorded in the new Information and Telecommunications Systems-Schedule 6.

Rooms Department

  • The segmentation that is used to record rooms revenue reflects efforts to provide greater detail and definitions and to align with industry practices.
  • Resort fees are now recorded in Miscellaneous Income-Schedule 4. They are not included in the calculation of average daily rate.
  • Enhanced guidance is provided regarding the handling of revenues and expenses associated with mixed-ownership lodging facilities.
  • Enhanced guidance is provided regarding the allocation of package revenues and the handling of package breakage, which has moved to Miscellaneous Income--Schedule 4.

Food and Beverage Department

  • Food and Beverage-Schedule 2 presents the revenues from both food and beverage venues. Separate food and beverage department schedules are not mandatory.
  • Enhanced guidance is provided regarding the handling of gift certificate revenue.
  • The term "cover" has been replaced with the term "customer" to reflect the number of people served.

Other Operated Departments

  • Telecommunications is no longer an Other Operated Department. Guestroom-generated revenues and cost of sales are now accounted for in Guest Communications on Minor Operated Departments-Schedule 3-xx. Function room-generated revenues and cost of sales are accounted for in Audiovisual on Food and Beverage-Schedule 2. All telecommunications-related labor expenses, administrative telecommunications costs, and the costs associated with complimentary phone and Internet services are recorded on the new Information and Telecommunications Systems-Schedule 6.

Miscellaneous Income

  • All resort fees and package breakage are recorded in Miscellaneous Income-Schedule 4.
  • Additional guidance is provided regarding the handling of commissions, business interruption insurance, foreign currency exchange, unused or forfeited gift certificates, and interest income.

Undistributed Departments

  • The information and telecommunications systems department has been created to consolidate all system-related technology expenses.
  • Additional guidance is provided regarding the handling of non-guest-related foreign currency exchange income and expenses.
  • The segregation of sales and marketing expenses was eliminated.
  • Revenue management and catering sales functions have been clarified as sales and marketing expenses.
  • Utility Taxes was eliminated as a separate expense category on Utilities-Schedule 9.
  • Contract Services was added as an expense category on Utilities-Schedule 9 to incorporate the cost of energy audits.

Non-Operating Income and Expenses

  • The net revenue generated by ownership that is not managed or maintained by the hotel is recorded as Non-Operating Income.
  • An Owner Expenses category has been added to account for such items as asset management fees, receiver fees, and owner directed market studies and audits.
  • Additional guidance is provided regarding the handling of equipment rental, unique municipal charges, and various employee housing expenses.

Financial Statements

The following statements highlight the material changes contained in the financial statements.

  • Revenue and expense categories have been added to the Income Statement to reflect changes made to the Summary Operating Statement.
  • A Statement of Comprehensive Income has been added to supplement the Income Statement. An illustrative statement is provided.
  • A reference to International Financial Reporting Standards (IFRS) was added.
  • Gift certificates and cards have been removed from Other Current Liabilities and made a separate line item.
  • Additional guidance is provided regarding the handling of inventories, operating equipment, and pre-opening expenses.

Financial Ratios and Operating Metrics

The following statements highlight the material changes contained in Part III.

  • In recognition of the importance of operational and financial analysis, the name of this section has been changed from "Ratios and Statistics" to "Financial Ratios and Operating Metrics."
  • Ratios are presented for both operating departments and undistributed departments.
  • For each department, a recommended schedule of key ratios is provided.
  • A recommended labor cost schedule is provided that presents detailed labor cost data for each department.
  • Additional utility and waste consumption ratios are provided, as is a discussion regarding the growing trend to measure sustainability and environmental impact.

Revenue and Expense Guide

The following statements highlight the material changes contained in the Revenue and Expense Guide.

  • Guidance is provided regarding the proper recording of both revenues and expenses.
  • The Revenue and Expense Guide available in an electronic format that is both sortable and searchable.

This article is reprinted from the May 2014 issue of the American Hotel & Lodging Educational Institute eNews.

About By Ralph Miller, CPA, CA, CBV, CHAE

Ralph Miller is a Chartered Accountant, Chartered Business Valuator, Certified Hotel Administrator, and Certified Hospitality Accounting Executive with over 25 years of operations and consulting experience in the hospitality industry. Prior to graduating from the University of British Columbia with a Bachelor of Commerce Degree in Accounting and Management Information Systems, and subsequently joining Coopers & Lybrand, Ralph spent nine years in the hotel and restaurant industry. After obtaining his designation as a Chartered Accountant, he went on to lead the Western Canada Hospitality Industry Practice at PricewaterhouseCoopers. Additionally, he has provided expert witness testimony in both the Supreme Court of British Columbia and the Court of Queens Bench in Alberta on valuation issues for businesses in the hospitality and tourism industry. In 1997 Ralph co-founded Inntegrated Hospitality Management Ltd. and since that time has been providing third party management and consulting services for clients with interests in accommodation, food and beverage, gaming and destination resort/vacation club development.

About American Hotel & Lodging Educational Institute

Established in 1953 as a nonprofit educational foundation of the American Hotel & Lodging Association, the Educational Institute’s mission is to continue being the preferred provider to the lodging industry, hospitality schools, and related hospitality industries by developing and providing quality resources to train, educate, and certify hospitality professionals worldwide. 

Contact: Elizabeth Johnson

ejohnson@ahla.com / +1.517-318-2359

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