Are you Auditing or Interpreting Hotel Accounts in 2016 - Part 8 Tips and Service Charges

There is the potential for much confusion about the nature and accounting treatment of these items.  

Here are some pointers and indicators to help to understand the issues and to interpret hotel data where they apply.  The term hotels includes rooms, restaurants, bars and related services.  There is no one UK standard that governs the accounting for tips and service charges.  The views expressed here are those of the author and the treatment of these items for hotel operating statements as set out in the 11th Revised Edition of the Uniform System of Accounts for the Lodging Industry (USALI).

Distinguishing between tips and service charges. 

Tips, or gratuities, are amounts paid by customers to employees either in cash handed to or left on the table for them.  Alternatively, they are amounts voluntarily added to bills, credit card charge slips, cheques paid, or via POS terminals by the customer.  In all cases, the customer decides whether or not to apply a tip and how much it should be. 

Service charges are amounts added by hotels to bills.  The hotel has made the decision to add a service charge - the existence of which and the applicable amount being stated on tariffs, menus and bar lists, and shown on the bills as part of the total payable when it is presented to the customer.

The distinction between these is not always accepted or understood but is considered to