Accrual Accounting for Tour Operators: What it is,Why it matters, How to do it
What Is Accrual Accounting for Tour Operators?
Accrual accounting records revenue when it’s earned and expenses when they’re incurred—not when cash moves in or out.
For tour operators, this means:
Tracking trip deposits as unearned revenue until the trip actually happens
Matching vendor costs to the trip date, not the invoice date
It gives you a truer picture of profitability by showing which trips are actually making money—and when. Without it, you risk overstating revenue, underreporting liabilities, and making decisions based on misleading cash balances.
Why & When Tour Companies Should Switch to Accrual Accounting
If you’re planning to sell your company, apply for financing, or scale beyond the solopreneur stage, accrual accounting isn’t just optimal—it’s usually required.
Lenders and buyers want to see how your business actually performs—not just your cash balance.
Accrual gives a clear picture of revenue timing, trip-level profitability, and outstanding liabilities.
Without it, your books may overstate profits, understate obligations, and make your business appear riskier or less valuable than it truly is.
A clean accrual-based set of books shows you're running a professional operation—and builds trust with banks, investors, and potential buyers.
How to Convert to Accrual Accounting
1. Pick a Start Date
Choose a clean cutoff—typically the start of a new year or quarter (e.g., January 1, 2025). From that date forward, track income and expenses based on when they’re earned or incurred, not when cash moves.
2. Clean Up Your Chart of Accounts
Accrual accounting requires a stronger foundation. Update or build your chart of accounts to include:
Unearned Revenue (liability – for customer deposits)
Prepaid Expenses (asset – for upfront vendor payments)
Accounts Payable (AP) – bills you’ve received but not paid
Accounts Receivable (AR) – invoices you've issued but not collected
Optional: Classes, Locations, or Projects for tracking by trip or customer
3. Track Customer Deposits as Unearned Revenue
Customer payments received before a trip takes place should be recorded as unearned revenue, not income. Only recognize the revenue once the trip is delivered.
4. Start Tracking Accounts Payable (AP)
Record vendor bills (lodging, guides, transport) when received—even if you don’t pay them right away. This helps you manage obligations and avoid missed payments.
5. Track Accounts Receivable (AR)
If you invoice customers or allow multi-payment plans, log the invoice even if the customer hasn't paid yet. AR gives visibility into what’s still owed.
6. Match Expenses to the Right Period
Vendor prepayments (like deposits to hotels or DMCs) should be recorded as prepaid expenses. You expense them when the trip takes place—not when you make the payment.
7. Use the Right Accounting Software
QuickBooks Online or Xero are both great options. Use features like Classes, Projects, or Locations to track performance by trip, region, or sales channel.
8. Reconcile Opening Balances
You’ll need to adjust things like retained earnings, AP, AR, and unearned revenue to reflect your new accrual basis. This is where a CPA can help ensure everything is accurate.
Sample Journal Entries for Tour Operators
Let’s walk through a common scenario: a $10,000 trip booked 6 months out.
1. Booking the Trip (Invoice Issued):
Customer books a $10,000 tour scheduled for 6 months from now.
Debit: Accounts Receivable (Asset) $10,000
Credit: Unearned Revenue (Liability) $10,000
2. Customer Pays 50% Deposit (5 Months Before Trip):
Customer pays half up front.
Debit: Cash (or Restricted Cash) $5,000
Credit: Accounts Receivable $5,000
3. Vendor Bills Received (Hotels, DMCs, etc.):
You receive a $6,000 vendor invoice related to the trip.
Debit: Prepaid Expenses (Asset) $6,000
Credit: Accounts Payable (Liability) $6,000
4. Final Customer Payment (2 Weeks Before Trip):
Customer pays the remaining balance.
Debit: Cash (or Restricted Cash) $5,000
Credit: Accounts Receivable $5,000
5. Trip Takes Place:
Now you can recognize the revenue and expenses.
Revenue Recognition:
Debit: Unearned Revenue (Liability) $10,000
Credit: Trip Revenue (Income) $10,000
Expense Recognition:
Debit: Trip Cost Expense (Expense) $6,000
Credit: Prepaid Expenses (Asset) $6,000
(If Using Restricted Cash):
Debit: Cash $10,000
Credit: Restricted Cash $10,000