Merits and Demerits of Managerial Accounting in Hotel Management

Merits and Demerits of Managerial Accounting in Hotel Management

Today, there is a lot of competition experienced in different businesses operating across the globe. One of the fundamental reasons for the competition is due to emerging new companies that pose a lot of challenges to the already existing businesses in the industry. Additionally, technological advancements and the changing marketing trends are also some of the reasons for the competition in the market (Turner, Way, Hodari, & Witteman, 2017). Therefore, for a company to continue operating in the competitive business environment, it is vital for the industry to adjust according to the trends that exist in the market. For the industry to comply with the regularly changing patterns, financial and managerial accounting is necessary. It is therefore essential to have a broad look into the managerial accounting with a focus in its demerits and merits.

According to Collier (2015), financial accounting usually reports the entire hotel business profitability whereas the managerial accounting gives a detailed report on the causative agents of problems experienced within the hotel business and what can be done to fix the issues. Additionally, financial accounting provides the necessary financial information to shareholders, creditors, and banks. On the other hand, managerial accounting provides information for internal consumption by the general managers or by the employees within the hotel business.

Going ahead, for any company that has gone public, the statutory laws requires that such companies to provide their financial accounting reports that should follow specific standards and formats provided by the different established regulatory bodies in a country (Turner, Way, Hodari, & Witteman, 2017). The financial accounting report helps the statutory body monitor the revenues of the business. For a managerial accounting, whether the company is publicly or privately trading, there is no law demanding for the release of management accounting.

For a business to continue being in operation, the managers will have to make continuous decisions from time to time. According to Martin & Gomez-Mejia (2016), for a business to operate, the industry needs money, and without proper decision making, there will be no money to run the industry. Some of the decisions to be made by managers include investment, financing, and dividend decisions. For a proper investment decision, management reporting tools are appropriate. Here, the hotel prepares a report on profits related to particular foods or services. An investment is supposed to be made then made by the earnings that the different services and foods bring to the hotel.

Once the hotel has made an investment decision on the particular food and services, it is essential to look for a proper channel to finance the meals and services. One of the tools that can be used to find an appropriate chain of financing is the cash flow position. Cash flow is the regular day to day earnings of the hotel. Once, the cash flow has been determined, the manager can make a decision on how much to use in funding the specific foods and services. With proper decision making in investment and financing, hotel managers need to make another sober decision in dividends (Turner, Way, Hodari, & Witteman, 2017). The managers can use the taxation tool in making such decisions. The manager needs to compare the tax rate on profit the capital gain tax rate. If the tax rate is found to be lower, the managers will allocate more dividends to the shareholders and vice versa.

Managerial accounting usually serves to ensure proper management of the hotel. However, there are some common areas of underperformance in administrative accounting functions. The underperformance in management accounting can intern lead to less than optimal decision making support. Some of the managerial accounting problems include inadequate monitoring of customer and supplier accounts, delaying decisions, and inappropriate personnel management. For instance, some hotel managers fail to monitor customer and supplier accounts (Turner, Way, Hodari, & Witteman, 2017). The monitoring failure usually arises when the business is doing so well that the manager does not feel anything wrong going on in the hotel.

On the other hand, the manager can delay making individual decisions. The delay on decision making can be due to lack of agency in deciding since the hotel can still operate whether the decision is made or not. Additionally, inappropriate personnel management can be a barrier to managerial accounting performance (Martin & Gomez-Mejia, 2016). Most human resource managers do not do a follow up on staff turnover as well as absenteeism. Additionally, the managers do not develop the skills and manage the careers of their employees.

For the hotel to avoid problems arising from managerial accounting that will affect decision making, the managers should come up with solutions. One of the answers is that the human resource manager should come up with a biometric system of identification. The system will enable the manager to monitor employees’ turnover and absenteeism. Additionally, the managers should consult with each during decision making to avoid delays in decision making that might affect the business in future. Finally, the consumer and supplier accounts should be continuously monitored to determine the cash flow and the debts the hotel owes the supplier and that which the consumer owes the hotel.








Martin, G., & Gomez-Mejia, L. (2016). The relationship between socioemotional and financial wealth: Re-visiting family firm decision making. Management Research: Journal of the Iberoamerican Academy of Management14(3), 215-233.

Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Turner, M. J., Way, S. A., Hodari, D., & Witteman, W. (2017). Hotel property performance: The role of strategic management accounting. International Journal of Hospitality Management63, 33-43.