BTEC Level 4 Hospitality Finance: Managing Transactions Report

This report, prepared for a BTEC Level 4 Higher National Certificate in Hospital Management, focuses on managing finance and recording transactions within the hospitality business. It begins with an introduction to accounting principles, defining accounting, its contribution to the hospitality industry, and analyzing key accounting principles like the business entity, going concern, monetary unit, and others. The report then delves into the application of the double-entry bookkeeping system, detailing debit and credit rules and illustrating transactions in a general ledger. It presents trial balances and explores the creation of income statements, comparing different options and offering recommendations. The report covers the accounting equation, financial statements, and offers practical examples of financial transactions. This assignment provides a comprehensive overview of financial management in the hospitality sector, aiding in understanding and applying fundamental accounting concepts.

BTEC Level 4 Higher National Certificate in Hospital Management
UNIT 4 THE HOSPITALITY BUSINESS TOOLKIT
|05 DECEMBER 2021 WORD COUNT: 2548
Managing Finance and
Recording Transactions
STUDENT’S NAME: TRAN LE HA MY
LECTURER’S NAME: MRS. HELEN DO

Table of Content
Introduction............................................................................................................................2
I. The principles of managing and monitoring financial performance:...........................................3
1. The definition of accounting and the contribution of accounting to the hospitality industry:3
2. Analysing the Accounting principles and its definition:..........................................................3
3. The basic Accounting Equation and the Financial Statement:................................................4
II. Applying the double entry book-keeping system of debits and credits to record sales and
purchases transactions in a general ledger:.....................................................................................6
1. Definition of double entry accounting and debit/credit rules:.................................................6
2. Double entry record option 1:..................................................................................................7
3. Producing a basic trial balance applying the use of the balance off rule to complete the
ledger:...............................................................................................................................................8
II. The trial balance with double entry bookkeeping.......................................................................9
III. Recording correctly transactions and an accurate trial balance by completing the balance off
ledger accounts with accepted accounting principles.....................................................................10
1. The income statement and profit and loss statement option 1 and option 2:........................10
2. Comparing the income statement option 1 and option 2 and recommending to the
organization:...................................................................................................................................11
Conclusion............................................................................................................................11
References............................................................................................................................12
1

Introduction
Accounting plays a critical role in all the fields nowadays. Every company now have to
comprises a finance department with multiple related positions such as account payable,
purchasing, account receivable, general cashier… to maintain and control the statistics. By
gaining deeper insight into the financial situation for example the profit, the income and the loss
of the company, the owner can have a better understand of their company situation. Therefore,
based on the accurate statistics and the recommendations from finance department, the owner
boost their profit to the maximum and develop the company.
2

I. The principles of managing and monitoring financial performance:
1. The definition of accounting and the contribution of accounting to the hospitality
industry:
1.1. Definition of accounting:
Due to Vietnam Accounting Law in 2003: Accounting is the collection, processing,
examination, analysis and provision of economic and financial information in the form of value,
product and timing. Accounting consists of three fundamental activities:
 Identification: Identify economic events (transactions)
 Recording: Record, classify and summarize
 Communication: Prepare accounting reports, analyze and interpret for users
The accounting process includes the bookkeeping function.
1.2. Both external and internal users take advantage of accounting data:
External users are taxing authorities, labor unions, customers, authorities, investors,
creditors… those are outside the organization who use the financial information to make
decisions or to evaluate an entity’s performance.
Internal users are finance department, human resources department, management,
marketing department…those are within a business organization who utilize financial
information to support their decisions in organizing and running the business.
Accounting plays a vital role in running a business because it helps you track income and
expenditures, ensure statutory compliance, and provide investors, management, and government
with quantitative financial information which can be used in making business decisions.
2. Analysing the Accounting principles and its definition:
2.1. Definition of accounting principles:
Accounting principles are the rules that accountants must follow when preparing
financial statements for a publicly traded organization. The principles have been developed and
modified through common usage by accountants all over the world. They are also what the
complete set of accounting standards were built upon, which are the standards issued by the
Financial Accounting Standards Board and the International Accounting Standards Board.
1) Business Entity principle: An organization created by an individual or individuals to
conduct business, engage in a trade or partake in similar activities. There are various types of
3

business entities — sole proprietorship, partnership, LLC, corporation, etc. A business's entity
type dictates both the structure of that organization and how that company is taxed.
2) Going Concern principle: It assumes that an entity will continue to operate indefinitely.
In this basis, generally, assets are recorded based on their original cost and not on market value.
Assets are assumed to be held and used for an indefinite period of time or during its estimated
useful life. And that assets are not intended to be sold immediately or liquidated.
3) Monetary Unit principle: The assumption that money itself is treated as a unit of
measurement. The organization record business transactions or events that can be expressed in
monetary terms by a currency.
4) Historical Cost principle: All business resources acquired should be valued and
recorded based on the actual cash equivalent or original cost of acquisition, not the prevailing
market value or future value. Exception to the rule is when the business is in the process of
closure and liquidation.
5) Matching principle: This principle requires that revenue recorded, in a given accounting
period, should have an equivalent expense recorded so as to show the true profit of the business.
6) Accounting period principle: A business report all of its financial information within a
set of time and that the business can divide all of its activities into defined time periods.
7) Conservatism principle: This principle requires company accounts to be prepared with
caution and high degrees of verification. All probable losses are recorded when they are
discovered, while gains can only be registered when they are fully realized.
8) Consistency principle: This principle ensures similar and consistent accounting
procedures is used by the business, year after year, unless change is necessary.
9) Materiality principle: Business transactions will affect the decision-making in an
organization. Therefore, business transactions must be reported properly and accurately. This
principle mentions that errors or mistakes in accounting procedures, that which involves
immaterial or small amount, may not need attention or correction.
10) Objectivity principle: This principle is the concept that the financial statement of an
organization was based on solid evidence, not based on any others third-parties or people.
11) Accrual principle: This principle requires that revenue should be recorded in the period
it is earned, regardless of the time the cash is received. The same is true for expense. Expense
should be recognized and recorded at the time it is incurred, regardless of the time that cash is
paid. This is to show the true picture of the business financial performance.
12) Transparent principle: This principle of transparency in organizing, engagement and
equity work refers to the full and honest accounting of all facts, information, and context
essential to ensuring an informed and equitable decision-making process.
4

3. The basic Accounting Equation and the Financial Statement:
3.1. The basic Accounting Equation included three main factors are assets, liabilities and
equity.
Asset are all resources controlled and held by the business and can derive future
economic benefits from the using of such assets.
Liabilities are obligations of the company. They are amounts owned to creditors for a
past transaction and they usually have the word “payable” in their account title.
Equity or “owner equity” are the words used on the balance sheet when the company is
a sole proprietorship. Owner’s equity may also be referred to as the residual of assets minus
liabilities.
= +
Providing the underlying framework for recording and summarizing economic events. It
also applies to all economic entities regardless of size. The expended accounting equation:
= +
5
Assets Liabilities Equity
Assets Liabilities Owner
Equity
Paid in
Capital/S
hares
Retain
Earnings
Revenue Expense

3.2. The Financial Statement are written records that convey the business transactions and
the financial outcomes of the company. Financial statements are audited by government
agencies, accountants, firms… so as to ensure accuracy and for tax, financing or investing
purposes. There are three different kinds of financial statements.
1) Balance Sheet: Providing an overview of a company’s assets, liabilities and
stockholders’equity as a snapshoot in time. The balance sheet identifies how assets are funded,
either with liabilities, such as debt, or stockholders’ equity, such as retained earnings and
additional paid-in capital. There are three items included in the balance sheet: Assets, liabilities
and shareholders’ equity.
2) Income Statement: An income statement is used for reporting a company’s financial
performance over a specific accounting period. Also known as the profit and loss statement or
the statement of revenue and expense, the income statement primarily focuses on a company’s
revenues and expenses during a particular period.
3) Cash Flow: The cash flow is used for measuring the company generates cash to pay its
debt obligations, fund its operating expenses and fund investment. The cash flow can help
investors to gain deeper insight into the operation of a company such as where its money is
coming from, how money is being spent, whether a company is on a solid financial footing.
II. Applying the double entry book-keeping system of debits and credits
to record sales and purchases transactions in a general ledger:
1. Definition of double entry accounting and debit/credit rules:
1.1. Double entry accounting is a system of recording business transactions where each
transaction affects at least two accounts and requires an equal debit and credit. Each transaction
must affect two or more accounts to keep the basic accounting equation in balance. Recording
done by debiting at least one account and crediting another. The total debits and credits in an
accounting system must be equal.
If debit amounts are greater than credit amounts, the account will have a debit balance. If debit
amounts are less than credit amounts, the account will have a credit balance.
1.2. The debit/credit rules:
6

Debit Credit
Assets Assets
Liability Liability
Equity Equity
Expenses Expenses
Revenue Revenue
2. Double entry record option 1:
1. Bank transfer from investors 200.000 USD
Debit Cash in bank $200.000
Credit Capital share/Owner equity $200.000
2. Payment of 6 months’ rent in advance via bank transfer 60.000 USD
Debit House rental payment $60.000
Credit Cash in bank $60.000
3. Purchase of equipment -bank transfer 10.000USD
Debit Equipment $10.000
Credit Cash in bank $10.000
4. Printing expense – payment to be settled later 2.000 USD
Debit Printing expense $2.000
Credit Account payable $2.000
5. Room rate increased but hotel charges would not be settled until check-out 8.000
USD
Debit Account Receivable $8.000
Credit Room revenue $8.000
6. Withdrew cash from bank account 5.000 USD
Debit Cash on hand $5.000
Credit Cash in bank $5.000
7. Received cash from guests 3.000 USD
Debit Cash on hand $3.000
Credit Account receivable $3.000
8. Laundry expenses – bank transfer 4.000 USD
Debit Laundry expense $4.000
Credit Cash in bank $4.000
9. Late payment to supplier (printing on 6 Oct) – bank transfer 2.000 USD
Debit Account payable $2.000
Credit Cash in bank $2.000
10. Utility bill payment – cash on hand 300 USD
Debit Utility payment $300
7

Credit Cash on hand $300
11. Employee salary October settlement – bank transfer 20.000 USD
Debit Employee salary expense $20.000
Credit Cash in bank $20.000
12. Telephone bill payment – cash on hand 350 USD
Debit Telephone expense $350
Credit Cash on hand $350
3. Producing a basic trial balance applying the use of the balance off rule to complete
the ledger:
The Trial Balance Option 1:
GL Account Debit Credit
Cash on hand 7,350
Cash in bank 99,000
Ac Account Receivable 5,000
Ve Equipment 10,000
House rental prepaid 60,000
Account Payable 0
N Owner Equity/ Share Capital 200,000
Revenue 8,000
Utility expense 300
Printing expense 2,000
Laundry expense 4,000
Employee salary expense 20,000
Telephone expense 350
Balance 208000 208000
The Trial Balance Option 2:
GL Account Debit Credit
Cash on hand 9,950
Cash in bank 169,000
Ac Account Receivable 5,000
Ve Equipment 15,000
House rental prepaid 72,000
Account Payable 0
N Owner Equity/ Share Capital 300,000
Revenue 10,000
Utility expense 500
Printing expense 3000
Laundry expense 5000
8

Employee salary expense 30000
Telephone expense 550
Balance 310,000 310,000
II. The trial balance with double entry bookkeeping
Record 1 month house rental
House rental prepaid for 6 months 60.000
1 month house rental expense: 60.000 : 6 = 10.000
Debit house rental expense: $10.000
Credit house rental expense: $10.000
The Adjusted Trial Balance Option 1:
GL Account Debit Credit
Cash on hand 7,350
Cash in bank 99,000
Account Receivable 5,000
Equipment 10,000
House rental prepaid 50,000
Account Payable 0
Owner Equity/ Share Capital 200,000
Revenue 8,000
Utility expense 300
Printing expense 2,000
Laundry expense 4,000
Employee salary expense 20,000
Telephone expense 350
House rental expense 10,000
Balance 208000 208000
Record 1 month house rental
House rental prepaid for 6 months 72.000
1 month house rental expense: 72.000 : 6 = 12.000
Debit house rental expense: $12.000
Credit house rental expense: $12.000
The Adjusted Trial Balance Option 2:
9

GL Account Debit Credit
Cash on hand 9,950
Cash in bank 169,000
Account Receivable 5,000
Equipment 15,000
House rental prepaid 60,000
Account Payable 0
Owner Equity/ Share Capital 300,000
Revenue 10,000
Utility expense 500
Printing expense 3000
Laundry expense 5000
Employee salary expense 30000
Telephone expense 550
House rental expense 12,000
Balance 310,000 310,000
III. Recording correctly transactions and an accurate trial balance by
completing the balance off ledger accounts with accepted accounting
principles.
1. The income statement and profit and loss statement option 1 and option 2:
1.1. The Income Statement Option 1:
Revenue 8,000
Total revenue 8,000
Printing expense 2,000
Utility expense 300
Laundry expense 4,000
Employee salary expense 20,000
Telephone expense 350
House rental expense 10,000
Total expense 36650
Profit (loss) -28650
1.2. The Income Statement Option 2:
Revenue 10,000
Total revenue 10,000
Printing expense 3000
Utility expense 500
Laundry expense 5000
10

Employee salary expense 30000
Telephone expense 550
House rental expense 12000
Total expense 51050
Profit (loss) -41050
2. Comparing the income statement option 1 and option 2 and recommending to the
organization:
Due to the following statistics, option 1 might be a feasible solution for the organization.
Comparing the profit loss between option 1 and option 2, while option 1 the amount of profit loss
is around $28,650, the amount of profit loss in option 2 is $41,050, which is almost double to the
amount of profit loss in option 1.
When it comes to the total revenue of two options, the total revenue of option 1 is only
$8,000, while the same amount of option 2 is $10,000. It is clear that the differences between
two options are not too far different with only $2,000 separately.
The total amount of money which was invested to option 2 is much higher than the same
amount of option 2. However, the total revenue of option 2 did not come to the expectation, with
only $10,000. The organization can make use of the trial balance and the income statement for
the making-decision in the company.
Conclusion
In general, the trial balance for recording transaction and comparing income statement in
accounting play an important role in a company. The benefits of these tool truly do wonders for
the company in making-decision to boost the work productivity and make a profit.
11

References
1. Dan Woods (2019), CPA Firm Tampa, The role of accounting in business and why it’s
important (online) https://www.pdr-cpa.com/knowledge-center/blog/role-of-accounting-in-
business (Accessed 1 December 2021)
2. Accounting Tools, Accounting CPE course and books (2021). Basic Accounting principle.
Basic accounting principles (online)https://www.accountingtools.com/articles/2017/5/15/basic-
accounting-principles (Accessed 1 December 2021)
3. Indeed Editorial Team (2021), 12 Widely Accepted Accounting Principles,
https://www.indeed.com/career-advice/career-development/widely-accepted-accounting-
principles (Accessed 2 December 2021)
4. William March (2011). Trial Balance: The Collected Short Stories of William March, Library
Alabama Classics, United States of America.
5. Robert McCarthy (2020), Bookkeeping: An Essential Guide to Bookkeeping for Beginners
along with Basic Accounting Principles, Primasta, England.
12