A Restaurant Chart of Accounts: Food, Assets and Expenses
Restaurant owners, especially when considering food and other appreciable assets, need to customize their accounting software’s so that it shows an accurate chart of accounts. Note that, in relation to a chart of accounts, each restaurant handles the matter of food differently. There are three main ways to list food on a chart of accounts.
List Food as a Simple Asset
The first, and by far the most common, way to list food is as a simple asset. This is the least accurate method for determining profit and waste, but it is often the most streamlined. A restaurant owner simply adds all the food expenditures for the month or accounting period and lists the cumulative sum as a single expense. This method is fast but doesn’t account for waste and spoilage. In this scenario, the restaurant owner liaisons with the executive chef, making that person directly responsible for excessive food waste.
Most small restaurants operate this way because the approximation of waste is more cost-effective than tasking its monitoring day-to-day.
Listing Food as an Operating Expense
The second way to list food on the chart of accounts is, as previously mentioned, by monitoring waste, listing it as an operating expense directly under food expenditures. For small-scale operations, this method isn’t popular because it takes time away from cooks, who are often spread thin already to keep wages low. The smaller restaurants that keep their books this way typically only deduct exceptional waste items like caviar, steak, cheese, etc.
This method, as the scale of the operation increases, becomes increasingly more common. There are variations, such as calculating median waste vs. purchase by weight, but those levels of monitoring are usually only seen in large-scale production facilities and fast-food chains.
Listing Food by Category
The third is separating perishable and nonperishable items on the ledger. Then it is just a matter of listing food into two categories, and deducting perishable waste only. This method can be time efficient and relatively accurate, but it doesn’t take into account the loss of nonperishable items. An example would be listing a bottle of truffle oil as a nonperishable, but after three months the oil goes rancid, and 30 percent of the bottle is thrown away.
Chart Of Accounts
Chart of Accounts is the term your accountant uses to describe the buckets used to categorize the money that flows in and out of your business.
The Chart of Accounts includes assets, liabilities, revenue, expenses, and equity.
Then all of these are broken down into subcategories… things like marketing, restaurant supplies, and sales are all items you would typically find in a restaurant Chart of Accounts.
Why you should care…
The Chart of Accounts is the source of a business’s financial statements.
Without it, getting insights into anything related to your restaurant’s moneymaking & spending will be a headache… and getting your taxes done will be especially difficult.
Types of Chart of Accounts
There are three types of Chart of Accounts
- Operating chart of accounts: They are used to post daily expenses. The accounts in Operating Chart of Accounts could be either expense or revenue accounts, and the information is shared by Finance as well as Controlling modules.
- Group Chart of Accounts: These are accounts used by the entire corporate group. They help in generating reports at the corporate
- Country-specific chart of accounts: This Chart Of Accounts help meet country-specific legal requirements
How to Use Your Chart Of Accounts
You’ve set up all of your accounts, now what?
There are a couple of ways you can successfully use your chart of accounts.
1. Stay On Top Of Your Money
One of the main purposes of a chart of accounts is to break down where your money is coming from. Take the Sales Account for example.
Your chart of accounts will show you a current balance of your sales. If you’re using a software like Xero, you can click on the balance for more detail. The software will then show you every transaction goes into the total balance.
2. Know What You Owe
In the same way that you can view sales details, you can also understand how much you owe and why.
When you select the accounts payable balance, you can see the outstanding invoices you have received from vendors, but have not yet paid. This level of detail will help you stay on top of bills and expenses.
3. Track Assets
A good chart of accounts will help you keep all of your assets together. This is important because assets are a key in creating the balance sheet, which is critical to keeping the books balanced.
In this account, Computer Equipment is a fixed asset. When the balance is expanded in accounting software, you can see all of the bills attached to that asset and the corresponding payments. With some software, like QuickBooks, you can create a subaccount under each asset to track the asset depreciation.
4. Fill Out Your Tax Forms
A proper, up-to-date chart of accounts is an efficiency lifesaver come tax season.
No one knows a chart of accounts better than certified accountants and bookkeeping experts. That’s why we’ve had these CPAs share some of their top setup tips. These nuggets of wisdom are incredibly helpful for getting your business started on the right track.
How do you handle bookkeeping for a restaurant? 5 Easy Steps!
1. Record Sales Through Your POS Daily
One of the first items you will have to figure out is how to properly record your sales. Sfst
Many find using QuickBooks for restaurants is an effective recording system.
- Record Your Sales Entries Per Day
Record a separate daily sales entry for each day (not monthly or weekly). With this method, your are mimicking how the cash and credit card deposits hit the restaurant’s bank.Most restaurants accept credit cards and settle the batch on a daily basis. This will result in a credit card deposit or deposits hitting your bank account separately for each batch. You need to analyze how funds are hitting your bank and set up your restaurant bookkeeping system to mirror that activity.
- Generate a Sales Report
In order to record the daily sales you will need to generate some sort of report that summarizes your sales. Most restaurant POS systems will have a daily sales summary built into them. If you need to customize the report to get more detailed information you will need to work through the customization with your POS system.
- Create a Daily Sales Journal
Once you have a sales summary you should set up a daily sales journal entry and create a memorized transaction in QuickBooks.
2. Handling Accounts Payable
The next step of your restaurant bookkeeping process should be to set up accounts payable. Keeping your vendors happy will be important if you want them to continue to do business with you.
- To start, learn how to enter bills and pay bills in QuickBooks; both are easy tasks to accomplish.
- Enter your bills 1-2 times per week and pay them once per week.
- If you are cutting checks for your bills you want to make sure to print checks from QuickBooks. This will automatically feed the payment information into your QuickBooks file, thus reducing unnecessary data entry.
- Another option is to pay your bills with online bill payment by linking your bank account to QuickBooks and signing up for online bill pay.
Pro Tip: Another part of your accounts payable will be setting up a credit card in QuickBooks. I have seen many users set up credit cards incorrectly in QuickBooks. A credit card should not be set up as an expense type account; it should be set up as a credit card type. Your expenses are recognized as you enter credit card charges. Setting up a credit card with the correct type will also allow you to reconcile the account, which is very important.
As a business owner, you are at major risk
by doing your own payroll. If you incorrectly file your payroll taxes or file
them late, the penalties and interest you will be assessed can be quite large.
You are held at a high level of liability if you do not outsource your payroll
to an accounting firm.
Outsourcing your payroll is surprisingly affordable and a necessary option to ensure consistent and reliable paychecks and accounting.
Pro Tip: Look for a payroll company that is very reputable. Require the payroll data have the capabilities to be imported into QuickBooks and all reports and paychecks to be sent digitally.
Reconciling QuickBooks accounts is the
single most important piece of the entire bookkeeping process.
Reconciling your accounts is the only way to know that you have recorded all of your financial transactions. You need to reconcile all of your accounts not just your bank accounts. You should reconcile bank accounts, credit cards, loans, lines of credit and payroll liabilities. Any account that gets a statement with a beginning and ending balance can be reconciled. Account reconciliation ensures that you are looking at accurate financial reports.
5. Financial Reporting
If you are not using financial reporting for your restaurant, then you are running your business blind. With such tight profit margins in the restaurant industry it is important to analyze your financial reports on a regular basis.
Restaurants should be looking at sales vs. cost of goods sold ratios as well as labor ratios. Another ratio many restaurants should consider is the prime cost, which aims to keep cost of food + beverage + labor at roughly 60% to 65% of your total sales.