Accounting, Financial Management and Business Law for Tourism: Books of Account, Double Entry, Journal, Ledger, Trial Balance and Cash Book, Depreciation, Final Accounts with Adjustments, Hotel Accounting, Funds, Capital Structure and Capital Budgeting, Internal Control, Cost Standards and Budgets, Working Capital and Cash, Investment and TFCI, the Contract Act and the Consumer Protection Act

Accounting records, classifies and summarises financial transactions and reports the results to owners, managers, lenders and the state. The double entry system, set out by Luca Pacioli in 1494, rests on the idea that every transaction has two aspects of equal value, a debit and a credit, so that the accounting equation, assets equal liabilities plus capital, always holds. The traditional golden rules follow the kind of account: for personal accounts, debit the receiver and credit the giver; for real accounts (assets), debit what comes in and credit what goes out; for nominal accounts (expenses, losses, incomes and gains), debit all expenses and losses and credit all incomes and gains. When a hotel pays ₹20,000 in wages in cash, wages (nominal) is debited and cash (real) is credited.

Depreciation is the allocation of the cost of a fixed asset over its useful life, recognising wear and tear, the passage of time and obsolescence. Under the straight line method (SLM) the annual charge is constant: (cost − residual value) ÷ useful life. A hotel kitchen range costing ₹5,00,000, with a residual value of ₹50,000 after 5 years, is depreciated by (5,00,000 − 50,000) ÷ 5 = ₹90,000 a year. Under the written down value method (WDV) a fixed rate is applied to the opening book value each year, so the charge falls over time. A coach costing ₹4,00,000 depreciated at 20% on WDV is charged ₹80,000 in year 1 (book value ₹3,20,000), ₹64,000 in year 2 (book value ₹2,56,000) and ₹51,200 in year 3 (book value ₹2,04,800). WDV suits assets that lose most value early, such as vehicles and computers; for companies, Schedule II of the Companies Act 2013 sets useful lives.

Final accounts are the trading account (showing gross profit), the profit and loss account (showing net profit) and the balance sheet (showing the financial position on a date); for companies the formats are those of Schedule III of the Companies Act 2013. Hotel accounting is departmental. The Uniform System of Accounts for Hotels, first published in 1926 by the Hotel Association of New York City and revised many times since as the Uniform System of Accounts for the Lodging Industry (USALI), reports revenue and direct expenses for each operated department, rooms, food and beverage and other operated departments, then deducts undistributed operating expenses, administrative and general, information and telecommunication systems, sales and marketing, property operation and maintenance, and utilities, to arrive at gross operating profit. A common format lets owners, operators and lenders compare hotels. Guest accounts of in-house guests are kept in the guest ledger (front office ledger); amounts due from those who have left, travel agents, credit card companies and corporate accounts are kept in the city ledger; the night audit checks and posts the day's charges.

Financial management is the planning, raising, allocation and control of funds; its three decisions are the investment, financing and dividend decisions, with the objective of maximising the owners' wealth. Long-term funds are owned funds, equity shares, preference shares and retained earnings, and borrowed funds, debentures, term loans from banks and financial institutions and public deposits; short-term funds come from trade credit, bank overdrafts and cash credit, and commercial paper. Capital structure is the mix of long-term debt and equity. Debt is cheaper, because interest is tax-deductible and lenders bear less risk, and it magnifies returns to shareholders when the business earns more than the interest rate (financial leverage, or trading on equity), but it adds fixed charges and the risk of default. Franco Modigliani and Merton Miller (1958) showed that, in perfect markets without taxes, the value of a firm does not depend on its capital structure; the traditional view holds that a moderate amount of debt lowers the overall cost of capital. Hotels and airlines are capital-intensive, with long gestation periods and high fixed costs (high operating leverage), so heavy borrowing combined with volatile demand is dangerous, as the failures of several Indian airlines have shown.

Working capital is the capital needed for day-to-day operations. Gross working capital is total current assets; net working capital is current assets minus current liabilities, so a hotel with current assets of ₹8,00,000 and current liabilities of ₹5,00,000 has net working capital of ₹3,00,000 and a current ratio of 1.6 : 1. The operating cycle, from buying supplies to collecting cash from customers, is short in hotels and restaurants, whose inventories are small and perishable and many of whose sales are in cash or by card, but receivables from travel agents, airlines and corporate accounts can be large. Part of working capital is permanent and part temporary, rising in the peak season. Cash management balances liquidity against the cost of idle cash; John Maynard Keynes named the transactions, precautionary and speculative motives for holding cash, and managers use cash budgets, prompt billing and collection, control of float and short-term investment of surpluses, while the Baumol and Miller-Orr models set the optimum cash balance.

Internal financial control is the set of policies and procedures that safeguards assets, prevents and detects fraud and error, and ensures that records are accurate and complete and that the business runs efficiently. Its tools are segregation of duties (the person who receives stores does not also pay the supplier), authorisation limits, documentation and pre-numbered forms, physical controls over cash, stores and cellars, regular reconciliations and internal audit; the Companies Act 2013 requires the directors of listed companies to state that adequate internal financial controls are in place. The hospitality industry faces problems of its own: its main product, the room-night or seat, is perishable and cannot be stored; cash and cards are handled at many points round the clock; there are many small transactions across many outlets; food, beverages, linen and amenities are easy to pilfer; guests are given credit, allowances and complimentary services; staff turnover and seasonal staffing are high; and tips and service charges must be accounted for. Controls such as the night audit, the separation of the kitchen, cashier and order-taking functions (the checking system), par stocks and bar inventories respond to these problems.

Establishing cost standards means fixing in advance what a unit of output should cost, so that actual costs can be compared and variances investigated. In food and beverage the tools are standard purchase specifications, standard yields, standard recipes and standard portion sizes, which together give a standard cost per portion. If a dish's standard cost is ₹120 and its menu price ₹400, its food cost percentage is 120 ÷ 400 × 100 = 30%; if the kitchen's actual food cost for the month runs above the standard percentage, the manager investigates prices, portioning, waste and theft. Housekeeping and rooms use standard costs per occupied room for linen, amenities and labour.

The opportunities for investment are large: rising incomes and domestic travel, a young population, growing inbound arrivals, new airports and regional air connectivity, cruise and wellness tourism, and the government's destination schemes. India has allowed 100% foreign direct investment under the automatic route in hotels and tourism; limits in aviation differ by segment, scheduled airlines, airports and other services, and should be checked for the current position. Large hotel projects have been placed on the Harmonised Master List of Infrastructure subject to conditions on project cost and location, which eases long-term borrowing; the current conditions should be checked. The challenges are equally real: high land costs and long gestation periods for hotels; many approvals and licences; high interest costs; seasonality; vulnerability to shocks such as pandemics, terrorism and natural disasters; and, in aviation, the high cost of aviation turbine fuel, dollar-denominated leases and thin margins. Kingfisher Airlines stopped flying in 2012, Jet Airways in 2019 and Go First in 2023.

The Tourism Finance Corporation of India (TFCI) was set up in 1989, on the recommendation of the National Committee on Tourism, as a specialised financial institution for the tourism sector, promoted by IFCI with other all-India financial institutions and banks. It provides term loans and other assistance for hotels, resorts, restaurants, amusement parks, multiplexes and other tourism-related projects, and has advised on tourism projects and studies. Its ownership has changed since its founding, and its present status should be checked. Other financial organisations also fund tourism: IFCI and the Small Industries Development Bank of India (SIDBI), which lends to small tourism enterprises; commercial banks; state financial corporations and state industrial and tourism development corporations; and international lenders, such as the Asian Development Bank, which has financed tourism infrastructure programmes in several states, and Japanese official development assistance, which financed the Ajanta-Ellora Conservation and Tourism Development Project from the early 1990s. The Ministry of Tourism's own schemes, such as Swadesh Darshan and PRASHAD, fund public infrastructure rather than private projects.

A contract is an agreement enforceable by law (section 2(h)). Under section 10, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared void. The elements are therefore an offer and its acceptance; an intention to create legal relations; consideration (section 2(d)), something in return; capacity (section 11: a person of the age of majority, of sound mind and not disqualified by law; an agreement with a minor is void, as held in Mohori Bibee v Dharmodas Ghose, 1903); free consent (section 14), which is absent when consent is caused by coercion, undue influence, fraud, misrepresentation or mistake; a lawful object and consideration (section 23); and certainty and possibility of performance. Tour packages, hotel bookings, airline tickets, charter agreements and allotment contracts between hotels and tour operators are all contracts.

Performance: the parties must perform or offer to perform their promises (section 37), and a valid tender of performance that is refused protects the promisor (section 38). A contract is discharged by performance, by agreement (novation, rescission or alteration under section 62, and remission under section 63), by impossibility, by lapse of time, by operation of law or by breach. Under section 56 an agreement to do an impossible act is void, and a contract becomes void when performance later becomes impossible or unlawful through an event the promisor could not prevent (the doctrine of frustration), as when a government ban on travel to a region makes a booked tour impossible. Breach is actual, a failure to perform when performance is due, or anticipatory, a refusal made before the due date (section 39), when the other party may treat the contract as ended at once. The remedies are damages under section 73 for loss that arose naturally from the breach or that the parties knew, when they made the contract, to be likely to result from it, but not for remote or indirect loss (the rule of Hadley v Baxendale, 1854); reasonable compensation not exceeding a sum named in the contract as liquidated damages or penalty (section 74); compensation for a party who rightly rescinds (section 75); payment on quantum meruit for work done; and specific performance or an injunction under the Specific Relief Act, 1963.

In Taj Mahal Hotel v United India Insurance Company (2019) the Supreme Court held that a hotel offering valet parking becomes a bailee of the car and is liable if it is stolen from its custody, and that an "owner's risk" clause on the parking tag does not by itself relieve the hotel of its duty of care.

The Consumer Protection Act, 2019 replaced the Act of 1986 and came into force on 20 July 2020. Its definition of "service" expressly includes transport, boarding or lodging or both, entertainment and amusement, so hotels, restaurants, airlines, railways, travel agents and tour operators are all service providers answerable to consumers for deficiency in service, unfair trade practices and unfair contracts. It recognises six consumer rights: to be protected against hazardous goods and services; to be informed about quality, quantity, potency, purity, standard and price; to be assured access to a variety of goods and services at competitive prices; to be heard; to seek redressal; and to consumer awareness. It set up the Central Consumer Protection Authority (CCPA) to act against unfair trade practices and misleading advertisements, including those endorsed by celebrities, and to protect consumers as a class. Disputes go to the District, State and National Consumer Disputes Redressal Commissions; complaints may be filed where the complainant lives or works, and electronically, and mediation is encouraged. The Act also introduced product liability and brought e-commerce, and so online travel agencies, under rules of its own.