2) Case Study 2 "Front Office Accounting at the Magic Crest Hotel" One of the major problems with front office accounting at the Magic Crest Hotel is monitoring guest and non-guest accounts. Management has always extended local businesses and government officials charge privileges, the idea being that, with the convenience of deferred payments, local patrons would be more likely to dine and/or host clients at the hotel. This program has proved to be highly successful. The volume of purchases charged to such non-guest accounts now approximates the level of sales incurred by registered guests. Unsure if this is a good or bad situation, Mr. Aerial, the front office manager, requests the front office accounting staff to study the problem and to report its findings at next week's front office meeting. At the weekly front office meeting, the hotel's accountant, Ms. Letsche, reports that there are at least three problems related to the hotel's non-guest charge purchasing policy: its impact on the daily hotel audit, the billing procedures to collect payment, and the number of applications for additional non-guest accounts. When asked to be more specific, she begins with a review of the daily hotel audit. She states that since the front office receives charge vouchers from the hotel's revenue centers, it is the front desk agent's responsibility to separate guest from non-guest accounts. Since registered guest charges are posted by room number, one would think it easy to sort those charges from the others. Unfortunately, both the hotel's room numbers and the non-guest account numbers are three digits, thereby making the sorting more time- consuming. Mr. Aerial asks if it is really necessary to separate the charges. Ms. Letsche explains that it is, since the hotel must maintain accurate guest folio balances. She further states that the non-guest vouchers are accumulated and posted on Saturday afternoons, when the hotel's business is less hectic. The billing procedures to collect non-guest account balances are tricky, Ms. Letsche said. Since the hotel bills non-guest accounts on the last day of each month, some charges occurring in a particular month may not be posted in time to appear on that month's bill. In addition, non-guest accounts usually are not paid in a timely fashion. In fact, 47 percent of last month's non-guest account balances remain unpaid and tomorrow is the date of the next billing cycle. Mr. Aerial explains that the local customers are important to the hotel and suggests that maybe Ms. Letsche is over-sensitive to the billing problems. Lastly, Ms. Letsche relates the fact that there are at least ten new applications for non-guest accounts. She has instructed her staff not to authorize any new accounts without her written approval. She further states that she is reluctant to authorize any additional non-guest accounts, and looks to Mr. Aerial for advice. Convinced of the positive aspects of such business, Mr. Aerial directs her to approve the requests and to assign account numbers effective the first day of next month. Ms. Letsche so instructs her staff. Discussion Questions a. What ideas would you suggest to facilitate a more effective processing of guest and non-guest charge vouchers? How might the daily audit be aided by such changes? Is the accumulated- postings routine for non-guest accounts an effective plan? (10 pts) b. What could be done to improve the hotel's billing of non-guest accounts? What could be done to improve collection of outstanding balances? (10 pts) C. What are the advantages and disadvantages to having a high volume of non-guest accounts? What about the cost of carrying and collecting outstanding balances? How might the hotel's cash flow be affected by such transactions? (10 pts)