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necessary when actual results vary significantly
from the budgeted results, and the analysis has
determined that the reasons for this variance is that
the operations budget is inaccurate. Creating a new
revised operations budget allows management to
use budgetary control techniques.
Further reading
Coltman, M.M. �1994) Hospitality Management
Accounting, 5th edn, New York: Van Nostrand
Reinhold.
Schmidgall, R. �1996) Hospitality Industry Managerial
Accounting, 3rd edn, East Lansing, MI: Educational
Institute of the American Hotel and Motel
Association.
Uniform System of Accounts for the Lodging Industry, 9th
edn, East Lansing, MI: Educational Institute of
the American Hotel and Motel Association.
budgeting
STEPHEN M. LEBRUTO, USA
Budgeting is a management planning activity
covering all phases of operations for a definite
period in the future. It is a formal expression of
the plans, objectives, and goals established by
management. Budgets are presented for the
concern as a whole and for each subdivision of
the operation. The budget is an organised estimate
of the future and a method of control.
Some of the most common types of budgets are
operating budgets, capital budgets and cash
budgets. The former are revenue and expense
projections for both operated and service departments.
The summary of all departmental budgets
are referred to as a master budget. Capital budgets
refer to the acquisition of fixed assets and the
management of debt and equity. Cash budgets are
summaries of the cash expected to be received and
disbursed over a finite period of time. Budgets can
be established at a specific level of activity, such as
room occupancy percentage. These budgets are
called fixed budgets. Often, management requests
budgets prepared at different levels of activity, such
as hotel room occupancy percentage. These types
of budgets are called flexible budgets.
The benefits of budgeting are that they force
management to examine alternatives prior to a
course of action, and view the facts relative to the
financial health of the organisation. Budgets provide
a standard for comparison, allow management to
prepare for the future, measure progress and assist in
self-evaluation, and clearly state the objectives of the
organisation. Reasons not to budget are the time and
cost of the process, the fact that there are many
unknown factors, the possibility of a breach in the
confidentiality of financial information, and the
promotion of excessive spending merely because the
budget dollars are available.
Operating budgets in hospitality operations
begin with department managers forecasting
revenues and expenses. Labour, the largest expense
in a hospitality and tourism operation, is shown
separately. Both operating departments and service
centres prepare budgets. Operating budgets best
serve management when they are prepared in
accordance with the uniform system of accounting
for Lodging Properties. The hospitality
industry is fixed asset intensive as compared to
manufacturing businesses. Therefore, capital budgeting
is an important major concern. Management
must decide which capital projects to fund
under a capital rationing system, which chooses the
most appropriate projects to undertake.
The hospitality industry is seasonal, and demand
for its services are variable. Cash budgets
must be prepared to alert managers of projected
shortages and excesses of cash. By knowing in
advance when shortages are expected, managers
can make arrangements to cover these deficits in
the most cost-effective manner. When management
is alerted to projected cash excesses, these funds
can be invested.
Further reading
budgeting 61
Coltman, M.M. �1994) Hospitality Management
Accounting, 5th edn, New York: Van Nostrand
Reinhold.
Schmidgall, R. �1997) Hospitality Industry Managerial
Accounting, 4th edn, East Lansing, MI: Educational
Institute of the American Hotel and Motel
Association.
STEPHEN M. LEBRUTO, USA