Uniform System of Accounts for the Lodging Industry – the Eleventh Revised Edition

By Howard Field, author of the ‘Guide to the Uniform System 10th edition’

The arrival of a new edition of the Uniform System of Accounts for the Lodging Industry
(USALI) is a significant event for the hospitality industry. Containing changes that are evolu-
tionary rather than revolutionary, it is important that readers and users understand their sig-
nificance. In this article I discuss the changes from the 10th edition that have been outlined
on the website of the American Hotel and Lodging & Education Institute. These changes are in
blue font in the following discussion and my comments are in black font.

Additional changes are presented throughout the USALI, which is available now online at:
https://www.ahlei.org/Products

Part I of the USALI is now the Operating Statements section. A small but important change to the se-
quence of sections so that readers immediately access those related to hotel management accounting.
Financial Accounting aspects are now covered in later sections.

a) Summary Operating Statement

The following statements highlight the material changes made to the presentation of the
Summary Operating Statement.
1. "Rentals and Other Income" has been changed to "Miscellaneous Income”
2. "Revenue" has been changed to "Operating Revenue" and "Total Revenue" has been
changed to "Total Operating Revenue"
3. "Information and Telecommunications Systems" has been added as a fifth Undistributed
Operating Department (see Part I, Schedule 6)
4. "Fixed Charges" has been changed to "Non-Operating Income and Expenses" (seePart I,
Schedule 11)
5. "Net Operating Income" has been changed to "EBITDA" (Earnings Before Interest, Taxes,
Depreciation and Amortisation)
6. 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, Amortisation, and Income Taxes are deducted
from EBITDA, and the bottom-line is "Net Income.”

HF: It is not just terminology that has changed. As will be seen later on, some of the changes
relate to the nature of the transactions and where they will be found in future in the man-
agement accounts. At the least, the new terms will have to be learnt, and presentation for-
mats will need to be brought into line.

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

b) Multiple Departments
1. In all departments, readers are advised to refer to the Appendix at the end of the book
that provides enhanced guidance on the reporting of revenues and expenses on a gross
versus net basis
HF: Section V of the book is a very useful and important addition, explaining the account-
ing logic as to whether the hotel should be accounting for a service as an Operated De-
partment with revenue, costs and profit - or as Miscellaneous Income based on the differ-
ence between the amount billed to a customer and the costs incurred by the hotel. It sets
out the criteria and gives examples.
This does not represent a change in practice so much as providing useful explanation of
the relevant principles.

2. Additional guidance is provided in each revenue-producing department regarding the

handling of surcharges, service charges, and gratuities
HF: Also in Section V, is a significant section on these subjects. Mixing them all together
underestimates their potential importance.
The treatment of resort fees and surcharges relating to the provision of services or use of
facilities is set out with examples.
US GAAP is then cited to cover the treatment these and service charges in relation to what
should be accounted for as revenue.
The principle stated here is that the charge to the customer represents hotel revenue
when it is
• compulsory or non-discretionary
• automatically added to the account by the hotel
• the amount is not determined by the customer
• the customer is not in control of any distribution

The hotel therefore is generally obliged to treat the amount charged as revenue, and not
to credit the amount to any expense account.
The explanation here is quite detailed, and reflects the result of considerable discussion of
a subject that was not fully explored in earlier USALI editions. Service charges were only
referred to in connection with Food and Beverage operations, and the distinction between
the treatments of service charges and gratuities was not clarified.
It has been recognised in the new edition that there exists a wide variety of different
practices, especially in non-US hotels. Practices range from service charge on all types of
revenue, including rooms, and many variations of how the revenues are accounted for and
whether there is any distribution made to employees (also see below).
The treatment of service charges, is probably the most significant change in the new USALI
edition. Where service charges that meet the stated criteria are applied to room rates,
they often amount to between 5 and 10 percent of the basic charge. In the Food and Bev-

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erage outlets, the range is commonly between 8 and 15 percent. These are substantial
amounts and, if not currently being treated as revenue, they will materially affect future
reported revenues and the related operating statistics.
Where agreements for management and franchise fees, or rents, commissions and other
charges are related to revenues, it will be essential for reference to be made to the rele-
vant agreement terms. In cases where no mentions were made of the subject, it may be
necessary for supplementary terms to be drafted. In some cases, new terms will have to
be agreed, and it may be that changes in operating practices will also have to be made.
Fundamentally, the accounting principles applying to service charge revenues should al-
ways have been as are now reflected, and the problem is the lack of any uniformity of
practice within the hospitality industry and the confusion between what is a service charge
and what is a gratuity.
This whole subject deserves wider consideration, not just for the purposes of the USALI.

3. The aggregated salaries and wages of management and non-management personnel are
presented on the department schedule.
HF: Categories have been added to each department schedule to provide additional infor-
mation regarding Labour Costs and Related Expenses.
A comprehensive list of payroll titles is included in Part I. Many hotels organise their la-
bour flexibly, to account for peaks and troughs of demand, and multi-skill their labour
force to improve efficiency. Hotels may find that the distinctions in the USALI between
management and non-management and the allocations of specific job titles to depart-
ments, do not match their practices.

4. Service Charge Distribution is presented as a distinct cost category within Salaries,

Wages, Service Charges, Contracted Labor and Bonuses. It has been moved from Pay-
roll-Related Expenses-Supplemental Pay
HF: See above for more on the subject of service charge. It is only where a distribution is
made to employees that this cost category will apply. In some jurisdictions where local
practice and tax issues apply, it may prove difficult to identify precise amounts distributed
to a particular department.

5. Contracted, leased, and outsourced labor costs are presented independently

HF: This is distinguished from services such as contract cleaning carried out by outside
companies and not as replacement for the hotel’s own employees that forms part of other
departmental expenses.

6. New expense categories have been added to account for cluster services and depart-
ment-specific reservations expenses
HF: Where cluster services are provided that include a range of services, it is not always
possible for these to be split into labour and other categories, or by department.

7. Administrative telecommunications expenses are no longer recorded within each de-

partment. All administrative telecommunications expenses are now recorded in the
new Information and Telecommunications Systems-Schedule 6

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c) Rooms Department
1. The segmentation that is used to record rooms revenue reflects efforts to provide
greater detail and definitions and to align with industry practices
HF: The greater details referred to here, that are to show on the rooms schedule, will not
be those used by every hotel. It is not clear why they need to set out in detail on this
schedule rather than on supporting schedules that can be suitably customised.

2. Resort fees are now recorded in Miscellaneous Income-Schedule 4. They are not includ-
ed in the calculation of average daily rate
HF: Service charges will however be part of total rooms revenue and will affect these sta-
tistics.

3. Enhanced guidance is provided regarding the handling of revenues and expenses asso-
ciated with mixed-ownership lodging facilities
4. Enhanced guidance is provided regarding the allocation of package revenues and the
handling of package breakage, which has moved to Miscellaneous Income – Schedule 4
HF: This guidance as to how to allocate package revenues contains subtle wording changes
from the last edition. The example shown has not changed from the last edition of the
USALI. This subject remains open to interpretation and practices vary widely.
The treatments of package breakage, and of service charge revenue, are among material
items that will have an impact. Accounting for package and inclusive revenues remains a
subject that requires further consideration.

d) Food and Beverage Department

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

e) Other Operated Departments

Telecommunications is no longer an Other Operated Department. Guest room-generated reve-
nues and cost of sales are now accounted for in Guest Communications on Minor Operated De-
partments-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 ex-
penses, administrative telecommunications costs, and the costs associated with complimen-
tary phone and Internet services are recorded on the new Information and Telecommunica-
tions Systems-Schedule 6

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

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g) Undistributed Departments
The information and telecommunications systems department has been created to consolidate
all system-related technology expenses.
1. Additional guidance is provided regarding the handling of non-guest-related foreign
currency exchange income and expenses
2. The segregation of sales and marketing expenses was eliminated
3. Revenue management and catering sales functions have been clarified as sales and
marketing expenses
4. Utility Taxes was eliminated as a separate expense category on Utilities-Schedule 9
HF: This elimination may cause some confusion where costs such as the purchase of carbon
credits apply, that relate directly to the consumption of power and reflect operating effi-
ciency. Consensus until now was that this was the appropriate category, as part of the ho-
tel’s utility costs.

5. Contract Services was added as an expense category on Utilities-Schedule 9 to incorpo-

rate the cost of energy audits
HF: For operating management, the key hotel performance measurement is Gross Operat-
ing Profit (GOP), so any changes as to what goes above or below this line are the most rel-
evant.
After management fees, the remaining items shown on the Summary Operating Statement
are not always known by the hotel management unless they are involved in handling the
administration of the related payments and accounting.

h) Non-Operating Income and Expenses

HF: Given that certain revenues as well as costs are non-operating, and rarely are they fixed,
the change of title from fixed charges is logical.
1. The net revenue generated by ownership that is not managed or maintained by the ho-
tel is recorded as Non-Operating Income
2. An Owner Expense category has been added to account for such items as asset man-
agement fees, receiver fees, and owner directed market studies and audits
3. Additional guidance is provided regarding the handling of equipment rental, unique
municipal charges, and various employee housing expenses
HF: After deducting the management fees and non-operating items from the GOP, the net line
is called Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). This is the
key management accounts figure that reflects the hotel’s financial result that will be mirrored
by its financial accounts.
In the USALI Summary Operating Statement, there is then a deduction of Replacement Re-
serve. This relates to a common provision in hotel management agreements that is explained
in the book, but which will not be relevant for many hotels.
There is then an owner’s version of the Summary Operating Statement that contains some of
the items such as interest, tax and depreciation that are financial items rather than those rel-
evant to operating management.

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j) Financial Statements
HF: This whole section refers to financial accounting, and largely to US GAAP. As a section of
the USALI book, it has been moved from the Part I to Part II, so as not to be confused with the
basis of the USALI as the industry’s management accounting standard.
The following statements highlight the material changes contained in the financial state-
ments:
1. Revenue and expense categories have been added to the Income Statement to reflect
changes made to the Summary Operating Statement
2. A Statement of Comprehensive Income has been added to supplement the Income
Statement. An illustrative statement is provided
3. A reference to International Financial Reporting Standards (IFRS) was added
4. Gift certificates and cards have been removed from Other Current Liabilities and made
a separate line item
5. Additional guidance is provided regarding the handling of inventories, operating
equipment, and pre-opening expenses

k) Financial Ratios and Operating Metrics

HF: Operating Metrics are now covered before the Financial Ratios, and the explanations have
been considerably extended.
The following statements highlight the material changes contained in Part III--Financial Ratios
and Operating Metrics:
1. 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
2. Ratios are presented for both operating departments and undistributed departments
3. For each department, a recommended schedule of key ratios is provided
4. A recommended labor cost schedule is provided that presents detailed labor cost data
for each department
5. Additional utility and waste consumption ratios are provided, as is a discussion regard-
ing the growing trend to measure sustainability and environmental impact

l) Revenue and Expense Guide

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

HF: It will take some time for the industry to absorb and implement changes arising from the
new USALi edition. To remain in compliance with the Uniform System, the new formats
should be in place by January 2015. This will involve considering the extent of restatement of
comparative figures, revising budget and operating statement formats, upgrading charts of
account, and related software changes. HOSPA’s Finance Technical Committee will maintain
links to resources as issues arise.

HF15JUN2014 - hf@howardfield.com
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