Define the purpose of accounting and finance management in the context of a tourism or hospitality organisation.

Assignment Brief

Finance Management in Tourism and Hospitality (OTHM/05/05-L5DTHM)

Qualification Number:  601/5661/2 

Credit Value: 20

Unit Reference Number : D/507/0027

Unit Aims :

This unit provides learners with an understanding of the fundamental principles of financial accounting and financial management in the tourism and hospitality industry. Learners will develop the ability to apply these principles to the work of managers in the tourism and hospitality environment. This unit should be studied within the contexts of local, national and international legal frameworks and good practice relating to finance.

Learning Outcomes: Finance Management in Tourism and Hospitality (OTHM/05/05-L5DTHM)

Assessment Criteria

1. Explain the principles of accounting in tourism and hospitality businesses

• Define the purpose of accounting and finance management in the context of a tourism or hospitality organisation.
• Critically analyse the difference between a sole trader, a partnership and a limited company
• Explain how financial software can support Tourism and Hospitality business’ accounting functions.

2. Describe the principles and documents involved in financial transactions

• Explain the rules of double-entry book-keeping and how it is used to maintain financial records
• Describe how to calculate and correctly account for VAT on purchases and sales
• Explain the role cash receipts, cash payments and bank reconciliation

3. Explain how a trial balance and adjustments are used to prepare a statement of comprehensive income and a statement of financial

• Explain how a trial balance is constructed.
• Demonstrate how this trial balance along with adjustments is used to prepare a Trading, Profit and Loss account and a Balance Sheet.

4. Justify how an organisation should manage its working capital and the process of revenue

• Describe the types and sources of finance available to a business and the ways in which a business raises capital
• Explain the role of and the process of budgetary control and revenue management in a tourism or hospitality business
• Demonstrate how to prepare a simple cash budget

Study contents 

• Introduction to finance management
• Introduction to management accounting
• Different types of tourism and hospitality business structures: sole trader, limited company, partnerships
• Types and sources of business finance
• The role of financial software in tourism and hospitality businesses
• Introduction to double entry book-keeping
• Understanding and calculating VAT and sales taxes
• Cash transactions and bank reconciliations
• Constructing cash budgets
• Constructing a trial balance
• Profit and Loss accounts
• Balance sheets
• Performance management
• Budget control and revenue management in the hospitality industry
• Making decisions about investments in tourism and hospitality

Indicative Reading List

• Chibili, M. (2010) Basic Management Accounting for the Hospitality Industry, Abingdon: Routledge
• Guilding, C. (2013). Accounting Essentials for Hospitality Managers, Abingdon: Routledge
• Hayes, D. & Millar, A. (2010) Revenue Management for the Hospitality Industry, Oxford: John Wiley & Sons
• Finance Management in Tourism and Hospitality (OTHM/05/05-L5DTHM)
• Define the purpose of accounting and finance management in the context of a tourism or hospitality organisation.

Sample Answer

Define the Purpose of Accounting and Finance Management in the Context of a Tourism or Hospitality Organisation

In the tourism and hospitality industry, accounting and financial management are essential functions that help ensure a business is financially healthy, sustainable, and able to meet its goals. These functions are used to manage money, track performance, make decisions, and comply with legal and tax requirements.

1. Supporting Business Decision-Making

One of the main purposes of accounting and financial management is to provide accurate and timely financial information to support decision-making. In a hotel or travel agency, for example, managers need to know how much money is coming in and going out, how much profit is being made, and which departments are performing well. Accounting systems track income, costs, and expenses, helping managers to make informed decisions such as whether to invest in renovations, hire more staff, or offer promotions during the low season.

2. Monitoring Financial Performance

Financial records allow hospitality and tourism businesses to measure how well they are performing. Managers can review key financial statements like the Profit and Loss Account and Balance Sheet to understand profitability, liquidity, and solvency. For instance, a restaurant can assess whether its food costs are too high or if a certain menu item is not generating enough revenue. This helps identify strengths and weaknesses in operations.

3. Ensuring Legal Compliance and Transparency

Accounting and finance management ensure that a business meets its legal obligations, including taxation, licensing, and reporting requirements. For example, in the UK, tourism businesses must follow HMRC regulations for calculating and reporting VAT. Proper financial records ensure that the business pays the correct amount of tax and avoids penalties. It also increases transparency and builds trust with investors, suppliers, and customers.

4. Managing Budgets and Controlling Costs

Effective finance management helps set budgets and control operational costs. In the hospitality sector, budgeting is vital due to seasonal fluctuations in demand. Hotels and resorts must plan for peak and off-peak seasons. Accounting systems help track actual spending compared to the budget, allowing businesses to identify cost overruns early and take corrective action.

5. Raising Capital and Attracting Investment

Tourism and hospitality businesses often need external funding to grow, whether to open new locations, upgrade facilities, or launch marketing campaigns. Clear and reliable financial records give confidence to banks, investors, and stakeholders. A well-managed finance function can help present solid business plans and secure loans or investment more easily.

6. Planning for the Future

Finally, financial management is key for long-term planning and sustainability. It helps businesses forecast cash flow, anticipate risks, and prepare for uncertainties such as economic downturns or global events like pandemics. For example, after COVID-19, many hospitality companies relied heavily on financial planning to recover and adapt.

Continued...