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Restaurant Bookkeeping and Accounting 101

When you own a restaurant, proper bookkeeping and accounting are necessary if you want to keep your doors open. You need to know what you’re spending, what you’re earning, and whether you’re turning a profit. Without these key pieces of information, you can’t expect to run a restaurant successfully.

Having knowledge about restaurant accounting is important if you are involved in any of the behind-the-scenes activities at a restaurant. You should be able to interpret the data to know what is going on so that everyone who has an active role in making the restaurant successful is on the same page.

We’re going to take a look at some restaurant accounting basics as well as some factors that are specific to restaurant accounting.

Restaurant Accounting Basics

When we’re talking about restaurant accounting, we’re talking about the process of recording, analyzing, and interpreting a restaurant’s financial data. When you hire an accountant for your restaurant, they may take care of the following basics:

  • Creating financial statements to help determine the financial health of the restaurant
  • Recording transactions in a ledger and coding and categorizing them accurately
  • Completing tax returns

If you hear someone talk about restaurant bookkeeping, that may only refer to recording transactions in the general ledger. An accountant’s duties are more far-reaching and look at more of the broader financial picture of a restaurant.

Restaurant accounting also takes into consideration other facets of a restaurant’s financial health. These include:

Creating Detailed Financial Statements

Cash flow statements are helpful for restaurants because they let you know whether you have enough money coming in to cover your expenses. When you’re looking at a KPI like prime cost, you can get a better picture of just how profitable your restaurant is.

When you track KPIs, you can see what parts of your business need attention. This can make the difference between closing your doors and being able to keep them open.

Stay compliant

You need accurate accounting practices to stay in line with the IRS. You also need to follow business guidelines when talking about restaurant accounting.

Restaurant Accounting Considerations

While those are the basics of restaurant accounting, there are some things to take into consideration that are specific to the restaurant business.

Tips

It can be difficult to manage and keep track of tips. You need to decide if they‘re going to be pooled, paid by paycheck, or in cash. 

Profit & Loss Statements

Keeping track of profit and loss can let you adjust spending when necessary. These statements help you to gain insight into how your restaurant is performing.

Managing Inventory

Restaurants need to take inventory regularly to see what they’re selling and to make sure nothing is going bad, or even worse, that nothing is being stolen. Knowing what items are selling can also help restaurants budget better.

Establish Accounting Periods

Some restaurants set up weekly accounting periods while others do it monthly. You need to decide which one is best for your business. Once you know when your accounting periods will be, it can make it easier to compare different aspects of your business.

Dealing with Prepaid Accounts

When dealing with different types of expenses, you need to budget for them properly. This means distributing the cost among the months, not expecting to pay it all in one month. 

Restaurant Accounting Methods

As you look at all the facets of restaurant accounting, it’s important to know about two different accounting methods. They are cash-basis and accrual accounting.

Cash-Basis Accounting

You record income when it is received and when expenses are paid. These things are done only when money changes hands.  This is usually the simplest accounting method.

Accrual Accounting

With accrual accounting, you record revenue when it’s earned and expenses when they're billed. Money does not have to be exchanged for this type of accounting. While this may not be the simplest, many restaurants prefer this method because it gives them a more accurate picture of their income and expenses. It is also the method that many lenders and investors prefer.

It’s important to note that you have to use the accrual method according to the IRS if you average more than $25 million in gross receipts and live in a state where it’s the law to file sales tax this way.

What Financial Reports Do You Need?

With restaurant accounting, you’ll want to have several types of financial records on hand to have a better idea of your financial health. They include:

  • Balance Sheet
  • Profit & Loss Statement

When you have all of these reports, it makes it easier to predict future sales, create budgets, track transactions, identify financial problems, and monitor changing costs.

Contact Our Restaurant Accounting Pros Today

There is a lot that goes into restaurant accounting. With nearly 30 years of experience working with small businesses in the Raleigh area, C.E. Thorn, PLLC, CPA can help with your accounting needs and prepare necessary financial statements. Call today at  919-420-0092 for more information.

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