Accounting for Restaurants: A Step-By-Step Guide
One of the most important aspects of running a successful restaurant is understanding the language of hospitality finance. To do so, you’ll need to know the ins and outs of how the food and beverage industry works. FreshBooks Support members are not certified income tax or accounting professionals.
Setting Up Your Books
A chart of accounts is used to categorize the money flowing in and out of your business. Choose a POS system for cash management, inventory management, order management, and back-office reporting to streamline your data entry tasks, create invoices, and track your revenue.
What You Need to Track
According to the National Restaurant Association, the restaurant industry employs 14.7 million people, accounting for 10% of the workforce in the United States. Outsource your payroll function or use payroll software to do the work for you.
Reporting and Analysis
When reviewing your restaurant’s financial statements, keep the following key ratios in mind: food cost is the cost of preparing an item on the menu divided by the total revenue from the item; overhead rates are the fixed costs of running your business, such as rent and insurance.
What Is Cost of Goods Sold in a Restaurant?
COGS stands for cost of goods sold in the restaurant industry, and it is calculated using the following equation: beginning inventory purchased inventory final inventory. Accounting systems for restaurants typically include financial software and point of sale (POS) systems, which can help you manage your food costs easily.
How do you do bookkeeping for a restaurant?
How do you handle restaurant bookkeeping in 5 simple steps?
- Set up accounts payable. Outsource payroll. Reconcile all accounts. Analyze financial reports.
What type of accounting do restaurants use?
The two accounting methods used in restaurant accounting are cash and accrual. Restaurants benefit from weekly inventory and profit and loss statements, as well as two ratios: food/beverage to expenses and revenue per seat.
How do you keep books for a small restaurant?
Your accountant will take longer u2013 and probably charge more u2013 to create your reports if you use a basic ledger book or one of the numerous “one-write” systems that use carbon paper to post each entry to multiple accounts. The downside is that your accountant will take longer u2013 and probably charge more u2013 to create your reports if you use a basic ledger book or one of the numerous “one-write” systems that use carbon paper to post each entry to multiple accounts.
Why is accounting important for restaurants?
They keep track of the restaurant’s inventory, cash flow, and income statements, and the information provided by restaurant accounting allows you to manage your cash more efficiently, predict your profits, balance your financial books, and plan for the future of your business.
What are the assets of a restaurant?
Restaurant Liabilities are similar to expenses and represent what the restaurant owes, such as outstanding vendor bills, leases on property or equipment, and loans. Restaurant Assets are what the restaurant owns; things like cooking equipment and tools, inventory, or cash on hand. Restaurant Liabilities are similar to expenses and represent what the restaurant owes, such as outstanding vendor bills, leases on property or equipment, and loans.
How do you categorize restaurant expenses?
Labor and food and beverage expenses are the two largest expense categories; food and beverage expenses are listed as cost of sales on financial statements, while all other expenses are listed as operating expenses, though they can be further divided into additional categories.
What is the best accounting method for a restaurant?
While the accrual method is the best for restaurants, some people prefer to use the cash-based accounting method, which can make your restaurant appear profitable when it is actually losing money. Always use the accrual method to ensure you report the accurate financial status of your restaurant.
What is a restaurant house account?
House accounts simplify the process for many restaurants that cater to businesses, schools, and other organizations. They work by extending credit to a reputable and frequent customer, allowing an order to be placed and fulfilled without immediate payment.
What is an example of accounts receivable?
An electric company that bills its customers after they receive electricity, and then records an account receivable for unpaid invoices while waiting for its customers to pay their bills, is an example of accounts receivable.
How do you prepare a final account?
The following formula can be used to calculate final accounts:
- Make a list of trial balance items and adjustments. Debit items should be recorded on the expense side of the P&L account or the assets side of the balance sheet. Credit items should be recorded on the income side of the trading P&L account or the liabilities side of the balance sheet.
What is considered inventory for a restaurant?
A restaurant inventory is made up of all the items or raw materials needed to prepare dishes, and a restaurant inventory management system makes it easy to keep track of each ingredient.
What are the operating expenses for a restaurant?
Operating Expenses in a Restaurant
- Food costs.
- Liquor costs.
- Labor costs.
- Inventory variance and shrinkage.
- Kitchen equipment costs.
- POS system costs.
- Marketing and advertising costs.
What should a restaurant accountant know?
Costs are divided into four categories in restaurant accounting:
- Cost of Goods Sold (CoGS): also known as food cost, CoGS is the total cost of all food and beverage ingredients used by your restaurant over a given time period.
- Labor costs: include expenses such as payroll, payroll taxes, and employee benefits.
Do restaurants use cash or accrual accounting?
Small restaurants and bars with annual revenues of less than $1 million can choose between cash and accrual methods; however, those with annual revenues of more than $1 million are required by the US Internal Revenue Service to use the accrual method.
Why is accounting is important?
Accounting is important in running a business because it allows you to track income and expenses, ensure statutory compliance, and provide quantitative financial information to investors, management, and the government that can be used to make business decisions.