UNIFORM SYSTEM OF ACCOUNTS

OR HOTELS
Uniform system of accounts -- Prescribed financial rules and regulations established by the
Federal Energy Regulatory Commission for utilities subject to its jurisdiction under the
authority granted by the Federal Power Act.
Uniform account is used by several hotel/ restaurants of the same accounting principles and
practices. uniform accounting is thus not a separate technique or method. It simply denotes a
situation in which number of hotels may use the same accounting principles in such a way as
to produce costs and sales which are of maximum comparability because from such costs and
sales, valuable conclusions can be drawn and one hotel can be compared to other.
The success of uniform system of accounting depends on the removal of the difficulties.
Existences of co-operations, mutual trust and a policy of give and take among the
participated member hotels/ restaurants.
Free exchange of ideas and technology, knowledge amongst the member hotels.
Free exchange of information regarding system of costing stocks, depreciation, etc.
Absence of rivalry and sense of jealousy amongst the member hotels.
Use of common heads to record sales.
Use of common terminology and procedures regarding cost apportionment and cost
control.
Advantages of uniform accounting system
Transfer: - the staff can be transferred from one hotel to other very easily as due to
same accounting system.
Comparison: - hotels can compare among each other. One can find out the causes fir
higher costs or lower sales and can take corrective measures.
Buying shares;- general public or financial institutions can compare the hotels
profitability and it helps them in deciding the price. They can pay to buy the equities,
take over or to pay as loans.
Lease or rent: - it is easy to decide on the rent or a lease for hotel.
CONTENT OF INCOME STATEMENT
Contents of the Income Statement
1. Net Sales: - Net Sales appearing in the Income Statement is the sum of the Invoice price of
the goods sold and services rendered during the period. Sales Inward represents the invoice
value of the goods rendered by the customers. Excise duty refers to the amount paid to the
government.
2. Cost of Goods Sold:- Cost of Goods sold is the sum of the costs incurred for
manufacturing and procuring the goods sold during the ccounting period. It consists of direct
material cost, direct labor cost, and factory overheads. It should be distinguished from cost of
production. The latter represents the cost of the goods produced in the accounting year.
3. Gross Profit: - is the difference between net sales and the cost of the goods sold.
4. Operating Expenses: - Operating Expenses is the difference between gross profit and the
operating expenses and depreciation.
5. Operating Profit: - Operating Profit is the difference between gross profit and operating
expenses. As a measure of profit it reflects operating performance and is not affected by nonoperating gains/losses, financial leverage and the tax factor.
6. Non Operating Surplus: - Non Operating Surplus represents gains arising from sources
other than normal operations of the business. Its major components are incomes from
investments and gains from disposal of assets.
7. Earnings before Interest and Taxes (EBIT): - EBIT is the sum of operating profit and
non-operating surplus/deficit. Referred to also as earnings before Interest and Taxes, this

represents a measure of profits which is not influenced by financial leverage and the tax
factor. Hence, it is pre-eminently suited for inter-firm comparison.
8. Interest :- is the expense incurred on borrowed funds such as term loans, debentures,
public deposits and working capital advances.
9. Profit before tax: - This is obtained by deducting interest from profits before Interest and
Taxes. Tax means income tax expense for the year.
10. Profit after Tax : - This is the difference between Profit before Tax and the Tax for the
year.
11. Dividends: -This represents the amount earmarked for distribution to shareholders
12. Retained Earnings: -This represents the difference between profit after tax and
dividends
Revenue
Schedule No.
Food sale (less cost)
1
Beverage sale ( less cost)
2
Other income
3
Salary and Wages
4
Employees benefits
5
Direct operational Expenses
6
Music & Entertainment
7
Marketing expenses
8
Energy Expenses
9
General expenses
10
Repair and maintenance
11
Rent and rates
12
Other expenses
13
Depreciation
14
Interest
15
Income Tax
16
The American hotel & Motel Association (A.H.M.A) has recommended 26 schedules.
The following important schedules are accepted by a group of hotels to have uniformity
in the accounting system. These schedules are as follow:Revenues
Schedules No.
Room sale
1
Food & beverage sale
2
Liqueur Sale
3
Telephone sale
4
Other sale
5
Salary and Wages
6
Employees benefits
7
Direct operational Expenses
8
Music & Entertainment
9
Marketing expenses
10
Energy Expenses
11
General expenses
12
Repair and maintenance
13
Rent and rates
14
Other expenses
15
Depreciation
16

Interest
Income Tax

17
18

Example: - from the following information, prepare the statement of income for XYZ
restaurant for the month ended on 31st Dec 2007.
Sale: - food
1,50,000
Beverage sale
50,000
Cost: - food
35% of food sale
Beverage
20% of sale
Salaries
25000
Employees Benefits
8000
Direct Operational expenses
18000
Music & Entertainment
4000
Marketing
2500
Energy and Utility
5000
General expenses
15000
Rent
6700
Interest
2500
Depreciation
6000
Income Tax
2000
Solution:Revenue
Food sale
Less cost
Beverage sale
Less cost
Gross Profit
Salary
Employees benefit
Direct operational Expenses
Music & Entertainment
Marketing
Energy and Utility
General expenses
Rent
Profit before Depreciation
Depreciation
Profit before Interest
Interest
Profit before income tax
Income Tax
Net Profit after Income Tax

Schedule
No.
1
2
4
5
6
7
8
9
10
12
14
15
16

Rs.
1,50,000
52,500
50000
10,000
25000
8000
18000
4000
2500
5000
15000
6700

Amount
97,500
40,000
1, 37,500
84,200

53,300
6000
47,300
2500
44,800
2000
42, 800

Contents of Balance Sheet

Assets
Broadly speaking Assets represents resources which are of some value to the firm. They have
been acquired at a specific monetary value by the firm for the conduct of its operations.
Assets are classified as follows under the companies act: Fixed Assets
Investments
Current Assets
Miscellaneous Expenditure
Fixed Assets: - These Assets have 2 characteristics: They are acquired for use over relatively long periods for carrying on the Operations
of the firm.
They are ordinarily not meant for resale.
Examples of Fixed Assets are Land, Buildings, Plant, Machinery, Patents and Copyrights.
Investments: - These are financial securities owned by the firm. Some investments represent
long-term commitment of funds. Other Investments are short-term in nature and may rightly
be classified under current assets for managerial purposes.
Current Assets: - this category consists of Cash and other resources which get converted into
cash during the operating cycle of the firm. Current Assets are held for a short period of time
as against fixed assets which are held for relatively longer periods. The major components of
Current Assets are: Cash, Debtors, Inventories and Prepaid Expenses.
Miscellaneous Expenditure: - Miscellaneous Expenditure represents certain outlays such as
preliminary expenses and pre-operative expenses which have not been written off. The Share
capital cannot be reduced when a loss occurs and therefore to keep the share capital intact
loss is shown on the right side of the Balance Sheet.
Liabilities
Liabilities when defined very broadly represent what the business entity owes others. The
following are classified as Liabilities
Share Capital
Reserves and Surplus
Secured Loans
Unsecured Loans
Share Capital: - This is divided into two parts:
Equity Capital
Preference Capital
The first represents the contributions of the equity shareholders who are theoretically the
owners of the firm. Equity Capital, being risk capital, carries no fixed rate of dividend.
Preference Capital represents the contribution of preference shareholders and the dividend
rate payable on it is fixed.
Reserves and Surplus:- Reserves and Surplus are the profits which have been retained in the
firm.There are two types of Reserves
Revenue Reserves
Capital Reserves
Secured Loans: - These denote borrowings of the firm against which specific securities have
been provided. The important components of the secured loans are debentures, loans from
financial instruments and loans from commercial banks.

Unsecured Loans: - these are the borrowings of the firm against which no specific security
has been provided. The major components of the secured loans are fixed deposits, loans and
advances form promoters etc.
Liabilities
Fixed Liabilities : Capital

Assets
Intangible Assets
Goodwill

Equities and preference share

Patents

Authorised Capital

Copyright

Issued Capital

Security paid for gas etc.

Subscribed capital
Long term Liabilities
Loan from bank
Debentures
Current Liabilities
Bills payable
Sundry creditors
Bank overdraft
Outstanding expenses
Short Term loan
Dividend payable
Unpaid expenses, rent, salary etc.
Reserves and Surplus
General reserve
Capital reserve
Special reserve

Cost for bar Licence

Fictitious Assets
Advertisement
Misc. Expenses
Profit & loss a/c
Fixed Assts
Machinery
Building
Furniture & Fixture
Floating Assets
Sundry debtors
Investments
Bills receivable
Stock in trade
Prepaid expenses
Liquid assets
Cash in Hand
Cash in bank

Internal Control
The internal control procedures in force within the Group are intended:

To ensure that acts of management take place within the framework provided by the
applicable laws and regulations, Company bodies, and the values, standards and rules of
the business, as well as within the framework of the strategy and objectives defined by the
Companys general management; and
To ensure that the accounting, financial and management information provided to
Company bodies genuinely reflects the business and situation of the Company and the
Group.
The principal objective of the internal control system is to prevent and manage risks
arising from the business of the Company, and in particular the risk of errors or fraud in
the area of accounting and financial matters. Like any system of control, it cannot,
however, provide an absolute guarantee that such risks will be completely eliminated.

THE COSO MODEL

In many organizations have adopted the internal control concepts presented in the report of
the Committee of Sponsoring Organizations of the Tread way Commission (COSO).
Published in 1992, the COSO report defines internal control as:
a process, effected by an entity's board of directors, management and other personnel,
designed to provide reasonable assurance regarding the achievement of objectives in the
following categories:

effectiveness and efficiency of operations,

reliability of financial reporting, and

Compliance with applicable laws and regulations.

COSO describes internal control as consisting of five essential components. These

components, which are subdivided into seventeen factors, include:
1. The control environment
2. Risk assessment
3. Control activities
4. Information and communication
5. Monitoring
The COSO model is depicted as a pyramid, with control environment forming a base for
control activities, risk assessment, and monitoring. Information and communication link the
different levels of the pyramid. As the base of the pyramid, the control environment is
arguably the most important component because it sets the tone for the organization. Factors
of the control environment include employees' integrity, the organization's commitment to
competence, management's philosophy and operating style, and the attention and direction of
the board of directors and its audit committee. The control environment provides discipline
and structure for the other components.

Risk assessment refers to the identification, analysis, and management of uncertainty facing
the organization. Risk assessment focuses on the uncertainties in meeting the organization's
financial, compliance, and operational objectives. Changes in personnel, new product lines,
or rapid expansion could affect an organization's risks.
Control activities include the policies and procedures maintained by an organization to
address risk-prone areas. An example of a control activity is a policy requiring approval by
the board of directors for all purchases exceeding a predetermined amount. Control activities
were once thought to be the most important element of internal control, but COSO suggests
that the control environment is more critical since the control environment fosters the best
actions, while control activities provide safeguards to prevent wrong actions from occurring.
Information and communication encompasses the identification, capture, and exchange of
financial, operational, and compliance information in a timely manner. People within an
organization who have timely, reliable information are better able to conduct, manage, and
control the organization's operations.
Monitoring refers to the assessment of the quality of internal control. Monitoring activities
provide information about potential and actual breakdowns in a control system that could
make it difficult for an organization to accomplish its goals. Informal monitoring activities
might include management's checking with subordinates to see if objectives are being met. A
more formal monitoring activity would be an assessment of the internal control system by the
organization's internal auditors
Characteristics of Internal Control
1.

Overview
o

Internal control can be easily defined as the bureaucratic regulation of an

organization. These types of controls deal with specific points and goals of the
organization and exert pressure at these points. Internal controls are about power and
the regimentation of organizational procedures and day-to-day work.

Goals
o

The main characteristic of internal control is the aim of the organization itself.
If it is educational, then control is about following university directives. If it is
military, then it is about battlefield tactics and logistics. The basic notion is that
internal controls streamline the ability of an organization to effectively carry out
orders from above.

Transparency
o

The transparency of finances is critical to internal control. The use of money is

a central issue for the operation of a bureaucracy. Transparency promotes
effectiveness and efficiency in the use of funds, the elimination of redundancies and
other wastes of time and resources. Basic bureaucratic competence is important here.

Compliance
o

Compliance with orders issued from competent authorities is another central

characteristic of internal control. A bureaucracy is in reality a large machine that puts
orders from above into practical action. How this is accomplished is an important

issue for the operation of the organization. The bureaucracy needs to translate orders
into concrete action in a minimum amount of time with as little friction as possible.
Employees
o

The larger issues involved in internal controls concern the proper training of
employees to know their field and avoid interfering in other fields. This minimizes
friction. Each employee to some extent is responsible for internal control, and these
responsibilities must be spelled out in detail, along with possible disciplinary actions
attached to non-compliance. Job descriptions must be clear and enforced, and, most
important, possible risks to the smooth running of the organization must be identified
and laid out.

Communication
o

Effective communication is another central feature of internal control. Parts of

the bureaucratic machine must work together, share the same basic information and
work at a steady pace to minimize friction and waste. Without communication on
events and ideas that will impact the organization, this cannot be done.
Communication and access to information are central due to the constant changing of
organizational controls.

Implementing an Effective Internal Controls System

The COSO internal control framework recognizes five essential components of any effective
internal control system:
The control environment: Values and culture; tone at the top; policies, organizational
structure.
Information and communication: Reliability, timeliness, clarity, usefulness.
Risk assessment: Identification, measurement, and responses to threats.
Control activities: Procedures followed for a control purpose.
Monitoring: Review of internal control arrangements.
A common failing in designing and evaluating a system of internal control is to focus almost
exclusively on control activities, vitally important though they are, overlooking that the other
components are also essential. The Securities and Exchange Commissions rule for
managements implementation of s404 of the SarbanesOxley Act requires that a recognized
internal control framework is applied. Usually it is the COSO framework that is used, and the
framework comprises all of these five as being essential components of an effective system of
internal control.
General hallmarks of an effective system of internal control include that controls:
are designed to meet objectives which are clear;
have regard to competitive issues;
enable and ensure that performance is measured;
result in unsatisfactory performance being rectified;
ensure that activities are completed in a timely way;
are cost effective;

are placed as early in the process as is practical, so that thereafter there is control;3
are preventative rather than merely permissive;
Have no more movements, or steps than are necessary.
Control activities can be categorized as follows:
Preventive controls: To limit the possibility of an undesirable outcome being realized. The
more important it is that an undesirable outcome should not arise, the more important it
becomes to implement appropriate preventive controls. Examples are when no one person has
authority to act without the consent of another, or limitation of action to authorized persons.
Corrective controls: To correct undesirable outcomes that have been realized. Examples are
the design of contract terms to allow recovery of overpayment, or contingency planning for
business continuity/recovery after events which the business could not avoid.
Directive controls: To ensure that a particular outcome is achieved or an undesirable event
is avoided. Examples are a requirement that protective clothing be worn, or that staff be
trained with required skills before working unsupervised.
Detective controls: To identify undesirable outcomes after the event. Examples are stock
or asset checks which detect unauthorized removals, or post-implementation reviews to learn
lessons.
Performance controls: To orientate and motivate the organizations people to focus on the
achievement of targets that are appropriate for the achievement of objectives. Examples are
despatching all orders on day of receipt of order, or allowing that less than 2% of production
should fail quality control checks.
Instruments used for food abd beverages services control
1.
2.
3.
4.
5.
6.

Kitchen Order Tickets

Restaurants Check
Restaurant sales summary Sheet
Kitchen Summary sheet
Guest Weekly Bill
Visitors Tabular Ledger

Kitchen Order Tickets:- The four copies of K.O.T are made. The order is taken by the
captain on KOT. The original copy of the KOT is given to Aboyer (barker) to place the order.
After the food has been picked up by the pick-up waiter, this copy of the KOT is kept in the
Locked K.O.T box, which is taken by the control department at the end of the day or shift.
The first carbon copy is given to cashier so that he can make the check. The second copy is
given to pick up waiter so that he can pick up food from the kitchen. The last copy is kept at
the side stand for the reference of captain or stewards and this helps in service.

Restaurant Check:- restaurant check is either prepared by cashier or waiter but is usually
priced and totalled by cashier. To pick-up the food, the check is shown by pick up waiter and
the check items are ticked by barker before fiving the food. On demand, four copies of the
check are presented to the guest, either he pays in cash os he signs and put his name and room
number or he settles his bill through credit card. If he pays in cash the original copy of the
check is returned to him with the stamp of paid and signature of cashier as a receipt, but in
case he signs as an resident or as a credit card holder than original copy is send to front office
and the first carbon copy is given to the guest for his reference. The second carbon copy is
send to accounts department and the third carbon copy is for control department.

Restaurant sales Summary Sheet:- on this summary sheet cashier maintains the complete
record of restaurantsales. When he issues a check to pock up waiter, he gets his signature and
when he returns the check to the cashier than the lower perforated portion of the check, along
with cashiers signatures, is returned to the waiter and this is his proof that he has returned the
check to the cashier. In case this check is lost than the respobsibility is fixed on cashier or
waiter and whoseever is held responsible, ie required to pay the price of the check and a fine
of Rs.1000. the restaurant sale summary sheet is prepared in duplicate and a opy each is send
to the accounts deparment and control department.

Kitchen Summary Sheet:- the chef prepared a kitchen Summar Sheet( kitchen Cost Sheet)
with the help of KOT. This summary sheet is prepared in duplicate and a copy each is send to
the accounts department and the control department.

Guest Weekly Bill: - for each resident of a hotel a guest weekly bill is prepared. All debit
and credit vouchers along with room tariff are posted in this bill and as soon as guest desires
to check out this bill is presented to him for settlement. For control purpose a copy of each is
send to control department and accounts department. But the original copy i given to the
guest as his receipts.
Visitors Tabular ledger:- For all the hotels residents od a day a visitors Tabular ledger is
prepared. For every day a new lwdger is prepared. On this ledger the room rent and all
voucher for all guests are prepared. VTL gives the total sales of the residents of the hotel (but

cash paid by resident in restaurant is not recorded here). The copy of each ledger is send to
control department and accounts department.
In case the hotel has the computerised accounting system than the restaurant sales summary
sheet, guest weekly bills, kitchen summary sheets and visitors tabular ledger are
automatically made and the control department can have their printouts on their computers.

AUDIT
The general definition of an audit is an evaluation of a person, organization, system, process,
enterprise, project or product. The term most commonly refers to audits in accounting, but
similar concepts also exist in project management, quality management, and energy
conservation.
Internal Audit
Internal auditing is an independent, objective assurance and consulting activity designed to
add value and improve an organization's operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes.
Statutory Audit
one conducted to meet the particular requirements of a governmental agency. Where such
audits take place, the scope and audit programs are set by the governmental body. Banks,
insurance companies, and brokerage firms have statutory audits. Since the auditor's report
must conform to standards required by the governing agency, the statements and other
financial data generated from these audits may not conform to GAAP."
Definition of 'Internal Auditor'
An employee of a company charged with providing independent and objective evaluations of
the company's financial and operational business activities, including its corporate
governance. Internal auditors also provide evaluations of operational efficiencies and will
usually report to the highest levels of management on how to improve the overall structure
and practices of the company
STATUTORY AUDITOR
STATUTORY AUDITOR is normally part of the internal audit function operating in one or
more of the following areas: a. Review of the Accounting Systems and the related internal
controls. Thus while the adequacy of the accounting systems is the responsibility of the
Management, the Statutory Auditor is usually assigned the specific responsibility for
reviewing the accounting systems and the related internal controls, as also monitoring their
operations; b. Review of financial and operating information including identification,
measurement, classification and reporting such information specifically enquiring into
individual items including detailed testing of transactions, procedures and balances; and, c.

Examination of the economy, efficiency and effectiveness of operations including nonfinancial controls
Difference between Internal and Statutory Audit

The internal audit is conducted to help the management. The weakness

of the management is disclosed. The external audit is conducted to help
the shareholder. The rights of owners are protected. The appointment
of internal audit is made by the management. The appointment in
external audit is made by the shareholders. Internal audit is the part of
internal control.
External audit is the not the part of internal control. The internal audit
can suggest improvement in internal check system. The external audit
cannot suggest improvement in internal check system. The internal
audit can perform his duties under the terms of appointment. The
management can limit the scope of work at any time. The external
auditor can perform his work to terms of appointment and other
prescribed law. The scope is very wide. Internal audit is an employee of
the company. He is not an independent person. External auditor is not
an employee of the company.