So, we had the following question asked,
How should our hotel handle a cancellation or attrition charge?
This is a question we get asked from time to time and it just so happened our Director of Accounting, Albert Tinnell, had just worked on this for one of our hotel monthly accounting clients.
Hotel Accounting: Attrition Fees
In his review, our clients question came about regarding cancellation fees; however, it can also be called attrition fees. The verbiage differs depending on the hotels Property Management System (PMS). Whichever way it is called, it is helpful to have your daily revenue report in the hotels accounting system use the same verbiage for tracking and review. Either way though, it is not a room segment so you will not be adding it to your room revenue. This includes when this contract is cancelled it is no longer part of your room revenue section for your financials.
Instead, it will show up within your Miscellaneous Income Section of your hotels financial statements.
Here’s a picture from the USALI 11th edition (Uniform System of Accounts for the Lodging Industry) showing where this activity would be located.
Now the next key area to consider is hotel taxes. You see, the way in which these instances are handled are very important to your taxes. Regarding taxation, it is important you know your local and your state taxes because it can be different for where your hotel is located.
For example, we complete the hotel accounting for hotels in Texas and California; two states with very different tax rates and setups. And each of those hotels have had attrition questions like this come up and as such we needed to talk with the local taxing offices to make sure those occupancy taxes were being applied appropriately. It needs to be completed this way because both states had differences in how that revenue should be taxed.
It should also be noted that in some PMS (Hotel Property Management Systems) you can set the specific tax rates and how they are handled so this can be automatically updated for you.
Plus, as a BONUS tip, you should review within your PMS System your hotels tax rates for each account and make sure nothing has been changed or altered throughout the year. Taking 10 minutes to check your tax rates can save you hundreds should you ever be audited with incorrect rates. This will also help with your hotels daily report detail and the activity that shows up on the financial statements.
So, I hope you found this quick tip helpful as it pertains to your hotels attrition and cancellation agreements in making sure you have the right activity for your hotel.
Don’t forget!
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This guide will show you how your hotel Point of Sale System, Property Management System, and hotel accounting system work together, what hotel formulas you should be reviewing, and how to use your market segments, so you can overcome the overwhelm of USALI (Uniform System of Accounts for the Lodging Industry.) Click here for your FREE Basics of Hotel Financials Guide: https://www.hotelsolutions.info/hotelfinancials
