Independent restaurant owners often keep their own accounts. Even if they hire a professional accountant at the end of the year, they can save a lot of money by doing the weekly tasks themselves.
Setting up a chart of accounts that meets the restaurant’s needs generally requires customizing the default options of any accounting program. The selection of sales and cost of goods accounts in most systems does not provide for a separation of the required food and beverage categories.
Even the leading accounting program for small businesses, while having a standard selection for restaurants, doesn’t offer all the accounts most restaurant owners need. Also, many of the emerging expense accounts are underutilized, leading to data entry confusion and lack of visibility into corporate finances.
The National Restaurant Association publishes a book called the Uniform System of Accounts for Restaurants. The book contains detailed descriptions of the application of generally accepted accounting principles to the restaurant industry.
This book includes a sample chart of accounts, but notes that “the codes used here are not the only method of classifying the accounts”. It notes that most restaurants won’t use all of the categories listed, and it particularly lacks a breakdown of inventory and cost categories beyond “food” and “beverages.” Many restaurant owners desire further separation of these categories to include subcategories such as “meat”, “seafood” and “produce” and possibly “beer” and “wine” for beverage categories.
While many programs do not require the use of account numbers, the NRA book states that some type of account numbering system must be used. If your program doesn’t display account numbers, it should have an option on a setup screen to enable this feature.
Each account numbering system is generally grouped so that accounts of a specific type fall within a specific range of numbers. For example, assets can be in the 1000 range and income accounts in the 4000 range. On systems with many detail accounts, 5 digit numbers can be used to allow for more subcategories, but this is rarely needed for a small restaurant.
Typical number sequences used by many accounting systems are as follows:
Asset Accounts: 1000-1999
Liability accounts: 2000-2999
Equity accounts: 3000-3999
Yield Accounts: 4000-4999
Cost of goods sold: 5000-5999
“Other” accounts: 8000-9999
Asset accounts include cash, bank accounts, inventory, and anything else that is owned.
It is common to assign the first account number, 1000, to cash, as they are usually ranked by liquidity (easily converted to cash) within each group.
A separate account should be used in the chart of accounts for each bank account maintained for the company. When merchant deposits take a few days to reach the bank, a merchant account can be used. Even if checks are accepted and not processed electronically, a check deposit account should be established.
New accounts are usually numbered 10 digits apart, so your first two bank accounts may use 1010 and 1020 as account numbers in the chart of accounts. If you leave gaps between the numbers, you can easily add another account later and place it anywhere in the sort order.
The property accounts can be numbered as follows:
- 1000 cash
- 1010 Primary bank account
- 1020 bank account #2
- 1060 merchant deposit account
- Received 1080 checks
- 1100 claims
- 1200 food inventory
- 1210 meat inventory
- 1220 poultry inventory
- 1230 Seafood Inventory
- 1240 milk inventory
- 1250 Inventory
- 1260 Bakery Inventory
- 1270 Frozen Inventory
- 1280 dry and canned food stock
- 1320 drink inventory
- 1330 liquor inventory
- 1340 beer inventory
- 1350 wine inventory
- 1360 Inventory
- 1380 cash and consumable inventory
- 1400 prepaid expenses and advances
- 1450 recycle return value
Assets that have a lifespan of several years or more are referred to as long-term assets. This includes any real estate.
- 1500 fixed assets
- 1510 Land & Buildings
- 1520 automobile
- 1530 furniture fixtures and fittings
- 1540 lease improvements
- 1600 Accumulated Depreciation
- 1700 Capitalized Starting Cost
- 1800 bails
Payable accounts include things like credit cards and payables to vendors. This includes monies received for things like taxes owed to the state, tips to employees, and gift cards sold but not yet redeemed. Home loans and other major financings are subcategorized as long-term debt.
Liability accounts may be numbered as follows:
- 2000 Accounts Payable
- 2110 credit card
- 2120 credit card #2
- 2130 credit card #3
- 2140 credit card #4
- 2210 sales tax payable
- 2220 Second tax liability
- 2250 wage liabilities
- 2260 Second payroll requirement
- 2280 tips held
- 2300 gift cards & vouchers
- 2350 customer credits
- 2400 promissory notes payable
- 2500 Other Debts
The owners’ investment in the company is reflected in the equity accounts. In the case of a corporation, this includes equity. It’s effectively the money the company owes to the owners. When an accounting period is closed, the balance of the income and expense categories is transferred to retained earnings, which is also an equity account.
The most basic equity accounts could be numbered:
- 3000 owner capital
- 3100 common shares
- 3300 retained earnings
Sales fall into the general category of income accounts. A restaurant, of course, will want separate categories for selling food and beverages, and possibly further separating sales of beer, wine, and spirits.
Typical income accounts are:
- 4000 sales proceeds
- 4200 food sales
- 4320 Beverage Sales
- 4330 Liquor Sales
- 4340 beer sale
- 4350 Wine Sales
- 4360 sale of goods
- 4500 catering & contracts
- 4700 Other operating income
- 4900 discounts
One difference between the NRA Recommendations and many other lists concerns the placement of the “Other Income” accounts. This may include income from sources such as cover fees, gaming or vending machines, and banquet room rentals. Most lists place these accounts in the 8000 range above expenses, but the NRB list places them in the 6000 range.
Most smaller sites only need a single category for other revenue. Because “cost of goods” is a general subcategory of expenses, it makes sense not to place an income category in the middle of the COGS to expenses range. A single account was included in this list within the 4000 range.
Placing the rebates in the revenue category implies that it is an “opposite” account. While most sale categories have a credit balance, discounts usually have a debit balance.
Cost of Goods Accounting
The cost of goods accounts, also called cost of sales or cost of goods sold, represent the purchases of food and drink to provide the meals. Other expenses directly related to the sale may be included, such as: B. merchant fees or consumable cups and napkins.
The numbers used here also ensure consistency across all accounts as the last 3 digits of each COGS category are the same as the last 3 digits of the associated stock account.
A cost list of goods might include:
- 5000 sales cost
- 5200 food cost
- 5210 Meat Cost
- 5220 Poultry Cost
- 5230 Seafood Cost
- 5240 milk costs
- 5250 production cost
- 5260 bakery cost
- 5270 Frozen Cost
- 5280 dry and canned food costs
- 5320 drink costs
- 5330 alcohol costs
- 5340 beer cost
- 5350 Wine Cost
- 5360 goods cost
- 5380 Ingot and Consumables cost
- 5600 delivery and direct labor costs
- 5700 merchant fees
In this example, the expense accounts are broken down into three main categories: payroll and other expenses. Labor costs are grouped in the 6000 range, other operating expenses in the 7000 range. Overheads such as rent, taxes and depreciation are bumped into the 8000 range.
While accounts must be broken down at least enough to separate tax lines, combining rarely used accounts makes the overview much easier to understand. The following list combines several categories that are often separated in other charts.
You should check with your accountant or tax professional to ensure that whatever you combine is actually sharing the same tax line.
The inventory loss/waste account has been pushed below the 6000 mark as some believe it falls under the cost of goods categories.
- 5800 Inventory Loss/Waste
- 6000 work related expenses
- 6100 manager wages
- 6200 employee wages
- 6300 contract work
- 6400 commissions paid
- 6500 employee benefits
- 6600 Workers’ Compensation Insurance
- 6700 employer payroll taxes
- 6800 subcontracting expenses
- 7100 Direct Operating Expenses
- 7110 China – Glassware – Cutlery
- 7120 restaurant and kitchen supplies
- 7130 Cleaning Materials and Costs
- 7140 Decorations & Guest Accessories
- 7150 Linen – Linen – Uniforms
- 7160 Fees – Permits – Licenses
- 7200 plague – security – other contract
- 7250 POS – Technical Support – Online Serv
- 7300 Marketing
- 7310 Media & Print Advertising
- 7320 promotional events
- 7400 Car & Travel
- 7500 music and entertainment
- 7600 repairs and maintenance
- 7700 utilities
- 7750 telephone & mains connection
- 7800 General and Administration
- 7810 bad debts – over/underrun
- 7820 bank charges
- 7830 insurance
- 7840 interest
- 7850 Professional Fees
- 7890 Miscellaneous office expenses
- 8100 rent and utilities
- 8200 equipment rental
- 8600 sales tax paid on purchases
- 8700 depreciation
- 8900 Other expenses
- 9000 income tax
The only remaining items to consider are the sale of major assets, other income from sources other than restaurant operations (such as investments or subletting of space), and a placeholder account for transactions where the business owner needs the assistance of their accountant.
- 9500 Gain/Loss on Sale of Assets
- 9900 Other income (not from operations
- 9999 Ask my accountant