Independent restaurant owners often do their own bookkeeping. Even if they hire a professional accountant at year’s end, they may save considerable money by handling the weekly tasks themselves.
Setting up a chart of accounts to fit the restaurant needs generally requires customizing the default choices of any accounting program. The selection of sales and cost of goods accounts on most systems does not provide for the separation of food and beverage categories that are needed.
Even the leading bookkeeping program for small business, while it has a default selection for restaurants, fails to provide all of the accounts that most restaurant owners require. In addition, many of the expense accounts that are added are rarely used, leading to confusion during data entry, and don’t help with the overview of the business finances.
The National Restaurant Association publishes a book titled Uniform System of Accounts for Restaurants. The book provides detailed descriptions of the application of generally accepted accounting principles to the restaurant industry.
That book includes a sample chart of accounts, but notes that “the codes used here are not the only method for classifying the accounts”. It points out that most restaurants will not use all of the categories listed, and it also notably lacks breakdown of inventory and cost categories beyond “food” and “beverage”. Many restaurant owners want further separation of those categories to include sub-categories 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 is not showing account numbers, it should have an option on a set up screen to activate that feature.
Any account numbering system is generally grouped so that accounts of a particular type fall within a specific range of numbers. For example, assets may be in the 1000 range, and income accounts in the 4000 range. On systems with many detail accounts, 5 digit numbers may be used to allow more sub-categories, but that is rarely needed for a small restaurant.
Typical number ranges that are used by many accounting systems are as follows:
Asset accounts: 1000-1999
Liability accounts: 2000-2999
Equity accounts: 3000-3999
Revenue accounts: 4000-4999
Cost of goods: 5000-5999
Expenses: 6000-8000
“Other” accounts: 8000-9999
Asset Accounts
Asset accounts include cash, bank accounts, inventory, and everything else that is owned.
It is common to assign the first account number, 1000, to Cash, since they are usually ordered, within each group, by liquidity (ease of converting to cash).
A separate account should be used in the chart of accounts for each bank account maintained for the business. If merchant deposits take a few days to reach the bank, a merchant account can be used. Also, if checks are accepted and not processed electronically, an account should be created for checks to be deposited.
New accounts are normally numbered 10 digits apart, so your first two bank accounts may use 1010 and 1020 as account numbers in the chart of accounts. Leaving gaps between the numbers makes it easy to add another account later and squeeze it in to the sort order in any position.
The asset accounts can be numbered as such:
Assets that have a lifespan of several years or more are referred to as Long Term Assets. This also includes any real estate.
Liability Accounts
Liability accounts includes things like credit cards and payables to vendors. It also includes money that has been received for things like tax that is due to the state, tips due to the employees, and gift cards sold but not yet redeemed. Real estate loans and other major financing is sub-categorized as long-term liabilities.
Liability accounts can be numbered as:
Equity Accounts
The owners’ investment in the company is represented in the equity accounts. For a corporation, this includes the shareholders equity. It is effectively the money that the business owes back 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:
Income Accounts
Sales fall into the general category of income accounts. A restaurant will obviously want separate categories for food and beverage sales, and may want further separation of beer, wine, and liquor sales.
Typical income accounts are:
One difference between the NRA recommendations and many other lists involves the placement of the “other income” accounts. This can include income from sources such as cover charges, games or vending machines, and banquet room rental. Most lists place these accounts in the 8000 range, above expenses, but the NRA list places them in the 6000 range.
Most smaller locations will only need a single category for other income. Since “cost of goods” is a general sub-category of expenses, it makes sense to avoid placing an income category in the middle of the range from COGS through expenses. A single account has been placed in this list within the 4000 range.
Putting the discounts into the revenue category implies that this will be a “contra” account. Where most of the sales categories will have a credit balance, discounts will normally have a debit balance.
Cost of Goods Accounts
The Cost of Goods accounts, also called Cost of Sales or Cost of Goods Sold, represent the food and beverage purchases to provide the meals. Other expenses directly related to sales may be included, such as merchant fees or consumable cups and napkins.
The numbers used here also provide consistency across all accounts, as the last 3 digits of each COGS category is the same as the last 3 digits on the associated inventory account.
A cost of goods list could include:
Expense Accounts
This example separates the expense accounts into three primary categories: payroll expenses and other expenses. The payroll expenses are grouped in the 6000 range, with the other operating expenses in the 7000 range. Overhead like rent, taxes, and amortization are bumped into the 8000 range.
While accounts must be broken down at least far enough to separate tax lines, combining rarely used accounts will make the overview much easier to understand. The following list combines several categories that are often separated on other charts.
You should check with your accountant or tax preparer to ensure that anything you combine does, in fact, share the same tax line.
The Inventory Loss/Waste account has been slid in under the 6000 marker, as some may consider it to belong with the Cost of Goods categories.
Other Accounts
The only remaining items to account for are the sale of major assets, other income from sources besides restaurant operations (such as investments or sub-letting space), and a placeholder account for transactions where the business owner needs their accountant’s assistance.
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