The Little Known but Mighty Facts of the USALI Schedule, 11th Edition

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Written by: Agnes DeFranco, Ed.D., CHAE, CHE, CHIA, CAHTA

When people think of the Uniform System of Accounts for the Lodging Industry (USALI), most often they envision a Summary Operating Statement (SOS) or an Operated Department schedule like Rooms or Food and Beverage. They may even think of the many service departments found in the Undistributed Operating Department section. It seems logical as most want to see how well the hotel performed or if they should be concerned. However, the USALI also provides guidance on many other items. All items are important but some, because we do not deal with them on a daily basis, tend to get dusty in our memories. So, we will dust off some cobwebs and take a closer look at a few of them.

Let us begin with a question to test your USALI knowledge. Which schedule or section of the USALI reports both revenue and expenses but is not an operating department? Give up? It is one of those sections which sometimes does not get as much focus: the Non-Operating Income and Expense—Schedule 11. This schedule has five distinct sections: Income; Rent; Property and Other Taxes; Insurance; and Other. 

Looking first at the Income section: besides revenue earned in operated departments, this is the only place where a hotel records any type of income. The three major categories of income included in this section are: cost recovery income; interest income; and other income.

In Figure 1 below, you can see the three lines representing these three sources of income. Cost recovery income is income collected from third parties for recovery of the common area maintenance (CAM) and any out of pocket expenses where the hotel does not earn a profit; hence, the name cost recovery. Then of course, interest income represents any money that hotel earns as interest because of deposits it has in reserve or restricted accounts. Finally, other income is income generated by the property that has nothing to do with the actual operations of the hotel or anything managed by the hotel. Some examples are billboards, retail space in the building or common area maintenance for spaces that are directed and managed by the owners. These sources of income should not be recorded in any Operated Department because these revenues were not earned from core hotel operations nor did they involve hotel management. One important item that one should not forget is that this is income embedded in a schedule that has a long list of expenses.  Thus, these numbers (as seen in Figure 1) are represented as negative numbers, often in parentheses. So, when you see negative numbers here — be happy!

Figure 1. Non-Operating Income and Expenses – Schedule 11

Moving along, the word “Rent” may sound simple enough, but the tricky point here is: what type of lease is in effect? For instance, in renting the land and buildings, hotels may have a ground lease rent. But when it comes to renting of property and equipment, be careful. If the property and equipment are related to a specific function such as a wedding or a New Year’s Eve buffet, that cost should be recorded in the department that uses the rental items. The leases that should be included here are information systems and telecommunications or AV equipment, vehicle leases, copiers, or any other lease or rental items that are not related to a specific function. Furthermore, if these payments are classified under capital leases per GAAP, then they should be treated as required according to GAAP. These leases can also include those signed to provide employee housing. If the employees paid subsidies back to the hotel for this housing, then the subsidies should be credited back to this account

The third part of this schedule is Property and Other Taxes. Understanding the current tax rules and rates, from gross receipts to assessments, is also important. This is especially true regarding assessments by Business Improvement Districts (BID) or public improvements. Specifically, be sure that clearly defined services in the assessment such as waste removal are not included in this section but instead are recorded as Waste Removal in Property Operation and Maintenance – Schedule 8. Similarly, if a property is in an area that experiences lots of snow in the winter months and the assessments includes snow removal, that should be coded to Grounds Maintenance and Landscaping which is also in Property Operation and Maintenance – Schedule 8. There are a lot of little things to remember.

The next section in this Schedule is Insurance. In the USALI, there are only three lines provided, Building and Contents, Liability and Deductible. It should straightforward, right? Well, nothing is as easy as it seems and if items are coded incorrectly, then all analysis and comparisons made will be useless. For example, in Building and Contents, one might think that all the insurance premiums that a hotel pays for the damage or destruction by fire, weather, terrorism, flood, even boiler explosion, or any other cause is charged to this account. Although this is true, if for some reason a hotel does not purchase enough insurance, the costs the hotel has to pay as a result of coinsurance, legal or settlement costs are also included in this line item. For liability, this includes all premiums relating to different liability insurance costs such as directors’ and officers’ coverage, professional liability coverage, employment practices liability insurance, fidelity, liquor, cyber and theft coverage, etc. However, payroll related insurance, such as workers’ compensation, although is called insurance, is included in employees benefits in the appropriate departmental schedule to which the associated payroll is charged. In addition, any premium adjustments due to the audit of underwriting assumptions submitted to insurance carriers, as well as the legal settlement costs, are included here.

Finally, the last section of “Other” has for items. The first one, Cost Recovery Expense, is sometimes mixed up with Cost Recovery Income. This is the exact opposite of the Cost Recovery Income discussed earlier. In fact, Cost Recovery Income and Cost Recover Expense should net to zero – so do not forget to check these two numbers. The second item is related to gains and losses earned or sustained due to the disposition of fixed assets. Care again should be given here since this one line item can be a negative number if the total gain for an accounting period exceeds the total loss. Third, any expenses an owner incurred and directed but are not associated with the hotel operations should be included here. A good example is when an owner wants to have a market study performed.

One item that is not shown in Figure 1 but is part of that section is Unrealized Foreign Exchange Gains and Losses. Notice the word “Unrealized.” If the gains and losses are realized, they should be reported under Non-Guest-Related Foreign Currency Exchange Gains (Losses) under Administrative and General Schedule – 5.

There you have it! That is why the little-known Schedule 11, just as the entire USALI, really has a lot to offer. Do check out the options for accessing this resource — either hard copy or digital subscription — as well as the USALI Theory and USALI Practice Certificates to help your staff to understand all the intricacies.

Agnes DeFranco, Ed.D., CHAE, CHE, CHIA, CAHTA (adefranco@uh.edu) is a professor and Conrad N. Hilton Distinguished Chair at the Conrad N. Hilton College, University of Houston in Houston, Texas USA. DeFranco is the co-author of six textbooks and has published more than 115 refereed articles. She is an HFTP Global past president and a recipient of the HFTP Paragon Award.

Read MoreWritten by: Agnes DeFranco, Ed.D., CHAE, CHE, CHIA, CAHTA When people think of the Uniform System of Accounts for the Lodging Industry (USALI), most often they envision a Summary Operating Statement (SOS) or an Operated Department schedule like Rooms or Food and Beverage. They may even think of the many…

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