Top 5 Innocent Mistakes in Hospitality Accounting and How to Avoid Them
Michele Fitzpatrick
5/5/2025
It’s hardly likely that your decision to enter the short-term vacation rental sector was influenced by a passion for accounting. Yet, keeping finances orderly and compliant is critical to the smooth running of your business—and your ability to scale.
But even if you’re a math whiz, the unique challenges of the hospitality sector make accounting even more daunting. Unlike other industries, hospitality accounting must navigate fluctuating occupancy rates, seasonal revenue variations, and a diverse range of income streams, from room bookings to food and drink sales. The web becomes even more complex when ensuring compliance with myriad tax regulations, including region-specific occupancy taxes and service charges that require meticulous tracking.
All these intricacies demand a specialized approach to financial management, as it involves not only standard bookkeeping but also the integration of trust accounting to manage funds for multiple property owners and strict adherence to regulations. Consequently, mistakes are easy to make—mistakes that can land property managers in hot water.
Let’s look at the top five innocent mistakes that property managers make with accounting and how to avoid them, including by using technology.
1. Misclassifying Advance Deposits
One of the most common mistakes that property managers make is misclassifying advance deposits. When a guest pays a deposit to secure their booking, this amount should be recorded as a liability—not as revenue—because it is technically money that belongs to the guest until they complete their stay. Misclassifying these deposits as revenue not only misleadingly inflates your income but also exposes you to potential tax issues, as they may be subject to regional sales and value-added taxes that must be remitted immediately.
It is, therefore, essential to have a robust accounting system that can automatically classify deposits correctly and ensure timely tax remittance. The keyword here is “automatic.” An accounting system that runs on automation will help you maintain accurate financial records and keep you compliant with tax regulations, reducing the risk of costly audits and penalties. Regularly reviewing your financial records and staying updated with local tax laws can also help prevent accounting mistakes, ensuring that your income statements accurately reflect your financial situation.
The importance of ensuring your team is fully clued in on proper classification also cannot be overstated enough. Providing training for your staff on the correct handling of deposits is essential to instilling good practice. Having periodic checks and audits can help you catch misclassifications early before they become significant issues.
2. Inadequate Trust Accounting
Trust accounting involves managing and recording the financial transactions of funds held in trust, ensuring they are separate from personal funds and used only for their intended purpose. Inadequate trust accounting can lead to severe legal violations and damage a property manager's financial trustworthiness. Mixing rental income from multiple owners into a single account not only creates messy records, but it also breaches legal requirements for trust accounting.
Establishing separate accounts for each property owner is crucial to avoiding this potentially disastrous pitfall. This is where removing manual processes in your accounting becomes a game-changer. By using accounting software designed for property management, you can automate the segregation of funds and maintain clear records of all transactions. This approach takes human error out of the equation, and it ensures that each property owner’s finances are managed accurately and transparently.
Robust internal controls also go a long way in preventing the commingling of funds. By establishing distinct ledger accounts for each property and monitoring them regularly, you can ensure that funds are appropriately allocated. To foster trust and demonstrate your commitment to transparency, ensure clear and consistent communication with property owners about fund management. It’s good practice to regularly provide them with detailed reports.
3. Inaccurate Revenue Tracking and Reporting
One of the biggest challenges in hospitality is managing multiple revenue sources while simultaneously balancing the books. In addition to rental income and cleaning and service fees, there are numerous secondary revenue sources to keep tabs on. These include concierge services, rental equipment, meal services, add-on amenities, pet fees, parking fees, gratuities, and individual sales from waiters and bartenders (both cash and credit card), as well as revenue from other outlets such as spa services. Tracking all these individual expense lines from different departments makes hospitality accounting anything but straightforward.
Another constant hurdle is the fact that the hospitality industry never sleeps. Property managers face a daily influx of revenues and settlements from various streams, all of which must be accurately recorded and balanced every day. This requires constant management of cash, credit cards, in-house guests, and accounts receivable, making it a highly demanding task. Moreover, it's not just about aligning revenues with receipts; every revenue system must sync with the property management system. This involves balancing sub-ledgers, including credit cards, guest ledgers, city ledgers, and advance deposit ledgers.
Accurate tracking and reporting of revenue, therefore, are crucial for maintaining the financial health of any hospitality business. Implementing a system that tracks revenue in real time and synchronizes data across all booking channels and revenue sources ensures surgically precise reporting. This approach helps avoid underreporting or overreporting income, which often results from manual entry errors or misallocation.
A robust accounting system that is capable of handling multiple sources of revenue will help reduce the risk of manual errors and provide you with a comprehensive view of your financial performance, allowing for better decision-making. Use good financial management software with real-time updates and error-checking features to help you quickly spot and correct discrepancies, ensuring that your revenue reports are always reliable.
4. Improper Reconciliation of OTA Invoices
A significant number of vacation rental bookings come from online travel agencies (OTAs) like Booking.com and Expedia, but reconciling their invoices can be complex and time-consuming. Discrepancies between the amounts received and expected can lead to inaccuracies in financial records and potential legal issues, especially when commissions, taxes, and other fees are withheld at the source. To avoid these problems, it is crucial to implement a thorough reconciliation. Using software that can align OTA invoices with your financial expectations can automate and simplify the reconciliation process, saving you time and reducing the risk of discrepancies.
A good rule of thumb is to choose an accounting system that can handle the intricacies of OTA invoicing, such as varying commission rates and tax withholdings. Regularly comparing OTA invoices with your records and staying in contact with your OTA partners can also resolve any discrepancies.
5. Neglecting Payment Processing and Data Security
Neglecting payment processing and security can lead to significant legal repercussions. Improper handling of payments, such as failing to preauthorize or securely store card details, can breach Payment Card Industry Data Security Standards (PCI DSS). This not only puts your guests’ data at risk but can also lead to hefty fines. This is where you need to ensure that your payment handling process is thoroughly compliant with PCI DSS and that you regularly train your staff to meet the requirements.
You should also continually update your security protocols to keep up with evolving threats and conduct routine security audits to identify and address potential vulnerabilities. Consider investing in advanced security measures such as encryption and tokenization to protect sensitive payment information.
When it comes to collecting and processing data, this is where having the ability to set user permissions and access rights at a very granular level, with full auditability, is critical to protecting your financial data and your guests’ personal data. Sharing credentials loosely across all members of staff is a very common practice but also a very dangerous one, especially as cyber attacks have been on the rise. Failure to protect guest data can lead to significant financial penalties and damage to reputation. In the US, businesses must comply with data protection regulations such as the California Consumer Privacy Act (CCPA). Properties serving European guests need to adhere to the General Data Protection Regulation (GDPR), where noncompliance can result in fines of up to 4% of total revenues.
Having a system in place that provides full auditability and powerful user management capabilities allows you to define, audit, and control access rights for both internal and external stakeholders, down to specific features and properties. This level of control helps ensure that sensitive data is handled securely.
Handling Unique Challenges
In the ultra-competitive world of hospitality, having the right tools is essential for success. This industry never stands still for long, so staying up to date with cutting-edge accounting practices and technology ensures your business remains compliant, efficient, and profitable. The less time you spend correcting mistakes, the more time you can focus on delivering exceptional guest experiences.
Michele Fitzpatrick
Michele Fitzpatrick is the CEO of eviivo, a market-leading and innovative property management software (PMS) that has transformed operations for over 27,000 hospitality businesses across Europe and North America.