Restaurant Accounting 101: Basic Restaurant Accounting
As a restaurant owner, you are likely already aware of the importance of keeping accurate records of your income and expenses. However, you may not be familiar with all the ins and outs of restaurant accounting. The following is a basic overview of what every restaurateur should know:
Restaurant Accounting 101
What Is Restaurant Accounting?
Restaurant accounting is the process of tracking and reporting the financial performance of a restaurant. It includes recording and analyzing revenue, expenses, managing inventory, and other financial transactions to produce financial statements and other reports.
Restaurant accounting is essential for the business owner and restaurant manager to understand the financial health of their business and make informed decisions about where to allocate resources. It also helps identify potential problems early, addressing them before they become too large or unmanageable.
Restaurant Bookkeeping vs Accounting for Restaurants
You’re not alone if you’ve ever wondered what the difference is between restaurant bookkeeping and accounting. Both terms are often used interchangeably, but there is a big difference between the two. Let’s take a look.
Restaurant bookkeeping is the process of tracking and recording all financial transactions relating to your restaurant business. This includes everything from sales and expenses to inventory and payroll. Restaurant accounting, on the other hand, is the process of analyzing, interpreting, and reporting on those financial transactions.
In other words, bookkeeping is the data entry part of accounting.
Having accurate financial records to make sound business decisions is essential, but it’s only part of the picture. You also need to understand and interpret that data in order to make the best decisions for your restaurant.
If you’re still unsure what the difference is, think of it this way: bookkeeping is like taking a picture of your financial situation, while accounting is like developing that picture into a coherent story.
Both bookkeeping and accounting are important parts of running a successful restaurant business. To get the most out of your restaurant’s finances, you need to master both.
Accounting for Restaurants
Accounting focuses on the financial statements and tracking revenue and expenses, while bookkeeping is more concerned with the daily transactions and recording of financial data.
Another difference is that accounting typically requires a higher level of training and expertise than bookkeeping. This is because accountants must be able to interpret and analyze financial data, whereas bookkeepers need to record it accurately.
Finally, accounting usually takes place on a quarterly or annual basis, while bookkeeping is typically done monthly or weekly. This is because restaurants have many transactions regularly occurring, so keeping track of them all on time is crucial.
Overall, both accounting and bookkeeping are essential for restaurants. Accounting provides financial statements and data analysis to help owners make informed decisions about their business. At the same time, bookkeeping ensures that all transaction recordings are accurate and on time.
Outsourced Restaurant Accounting vs In-House Restaurant Accounting
When it comes to restaurant accounting, there are two main options:
- Outsourced restaurant accounting
- In-house restaurant accounting
Both have pros and cons, so it’s essential to weigh the options carefully before deciding.
Outsourced Restaurant Accounting
Outsourced restaurant accounting is an excellent option for busy restaurateurs who don’t have the time or resources to handle all aspects of their finances. An experienced accountant can take care of everything from bookkeeping and payroll to tax preparation and financial reporting. This can free up your time so you can focus on running your business.
However, outsourced restaurant accounting can also be more expensive than handling your finances in-house. You’ll need to factor in the cost of hiring an accountant and any additional fees they may charge for their services.
In-House Restaurant Accounting
Keeping your restaurant accounting in-house gives you more control over your finances. You’ll be able to track everything more closely and ensure that all your books are in order. However, it will take more time, and you’ll need a dedicated staff member or team to handle all the accounting tasks.
In-house restaurant accounting can be a good option if you have the time and resources to handle your finances. This allows you to control your finances and monitor your spending.
However, in-house restaurant accounting can also be more time-consuming than outsourcing. You’ll need to keep track of all your financial transactions and ensure your books are up to date. This can be a daunting task for busy restaurateurs.
Outsourcing or keeping your restaurant accounting in-house depends on your specific needs and preferences. If you’re unsure which option is best for you, talk to a professional accountant or financial advisor for their input.
Do Restaurants Have Accounts Receivable?
Yes, restaurants have accounts receivable (A/R). This is the money customers owe the restaurant for goods/services they have been provided but not yet paid for. The A/R account is used to track these outstanding balances and ensure that they are eventually paid off.
Restaurants usually extend credit to their regular customers and allow them a certain amount of time to pay their bills. This can be helpful for customers who may not have the cash on hand to pay for their meal immediately. However, it can also create problems for the restaurant if customers do not pay their bills promptly.
Unpaid A/R can strain a restaurant’s cash flow and make it difficult to cover expenses. Restaurants need to keep a close eye on their A/R and take steps to collect any outstanding payments. There are several different ways to do this, such as sending reminder invoices or calling customers to remind them of their due balance.
In some cases, restaurants may turn to outside collections agencies to help them recover unpaid A/R. This can be expensive and time-consuming, so it is typically a last resort. Ultimately, it is up to the restaurant to decide what method of A/R collection will work best for them.
What Does a Restaurant Accountant Do?
A restaurant accountant is responsible for various financial tasks, from recording transactions and coding expenses to analyzing journal entries and managing accounts payable. In short, they play a vital role in ensuring the financial health of a restaurant.
While the day-to-day duties of a restaurant accountant can vary depending on the size and needs of the business, there are some everyday responsibilities that all restaurant accountants share. These include:
- Recording Transactions: The first step in managing a restaurant’s finances is accurately recording all income and expenses in the general ledger. This requires a keen eye for detail and a strong understanding of accounting principles.
- Coding Expenses: Once transactions have been recorded, it’s important to code them correctly for tax and accounting purposes. This includes categorizing expenses by type (e.g., food, labor, rent, etc.) and assigning them the appropriate tax treatment.
- Analyzing Journal Entries: A key part of a restaurant accountant’s job is regularly reviewing journal entries to ensure they are accurate and in compliance with generally accepted accounting principles (GAAP). This analysis helps prevent errors and ensures that financial statements are correct.
- Accounts Payable: In addition to recording and coding transactions, restaurant accountants also manage accounts payable. This includes processing invoices/bills from vendors and wholesale food suppliers and making timely payments to avoid late fees and interest charges.
- Bank Statement Reconciliation: A restaurant accountant’s first and most important task is to reconcile the bank statements. This involves ensuring all income and expenses are accounted for and matched up with the records in the accounting software. Without this reconciliation, it would be impossible to produce accurate financial statements.
- Creating Financial Statements: Another key responsibility of a restaurant accountant is to create various financial statements. This includes the balance sheet, income statement, and cash flow statement. These statements are used to determine the business’s overall financial health and identify any areas that may need improvement.
- Defining budgets, benchmarking KPIs, and tracking performance toward goals: Creating and managing budgets is one of the most important tasks for a restaurant accountant. This ensures that all income and expenses are accounted for, and enough money is available to cover all costs. Benchmarking KPIs such as cost of goods sold (COGS) ratios and the prime cost help the accountant track progress towards goals and identify areas where improvement is needed. Tracking performance is also essential to see how the business is doing overall.
- Completing tax returns & providing tax advice and assistance: A restaurant accountant is responsible for ensuring that the restaurant’s taxes are filed correctly and on time. They may also be required to provide tax advice to the restaurant owner or manager and help with any tax-related problems that may arise.
- Offering financial insights and advice: A restaurant accountant can provide valuable insights into the financial health of a restaurant and guide how to improve profitability and cash flow. They can also help with budgeting and inventory forecasting and advise on cost reduction strategies in restaurants.
- Auditing: A restaurant accountant may be required to conduct regular audits of the restaurant’s financial records to ensure accuracy and compliance with tax laws.
How to Do Restaurant Accounting
Restaurant accounting can seem daunting, but it doesn’t have to be. You can easily keep up with your restaurant’s finances by following simple steps. So how do you do restaurant accounting? Here are five tips to get you started:
1. Keep meticulous records.
This may seem like a no-brainer, but keeping detailed records of your restaurant’s financial transactions is important. This includes everything from invoices and receipts to bank statements and credit card statements.
Organizing your records can be daunting, but there are a few things you can do to make it easier. First, set up a filing system that works for you. Make sure everything is labeled clearly and easily, whether you use physical or electronic files.
Second, get into the habit of recording transactions as they happen. This will help you stay organized and avoid mistakes. And finally, don’t be afraid to outsource this task to a professional accountant or bookkeeper if it becomes too overwhelming.
2. Understand your costs.
One of the essential aspects of restaurant accounting is understanding your costs. This includes your fixed costs (e.g., rent, utilities, insurance) and your variable costs (e.g., food, labor cost, supplies).
Fixed costs are easy to calculate because they don’t fluctuate much monthly. Variable costs, on the other hand, can vary significantly depending on business conditions. As a result, it’s important to track these costs carefully so you can make informed decisions about pricing and profitability.
3. Use accounting software.
If you’re not using accounting software, now is the start. Restaurant accounting software makes it easy to track income and expenses, generate financial reports, and comply with tax laws.
There are several different accounting software programs on the market, so take some time to research your options and find the one that best meets your needs. And if you have any questions, be sure to consult with a professional accountant or bookkeeper.
4. Stay up-to-date on tax laws.
Taxes can be complicated, so staying up-to-date on the latest laws and regulations is important. This includes knowing which taxes you’re responsible for as a business owner and keeping track of deadlines.
If you’re unsure about anything, don’t hesitate to seek help from a professional tax advisor. They can answer your questions and help ensure you comply with the law.
5. Hire a professional accountant or bookkeeper.
If you don’t have the time or resources to handle your restaurant’s accounting, consider hiring a professional. An accountant or bookkeeper can handle all the grunt work for you, freeing up your time to focus on other aspects of your business.
When choosing a professional, be sure to do your research and ask for recommendations. You should also ensure they’re familiar with the restaurant industry and have experience dealing with tax laws and regulations.
Proper restaurant accounting is essential to the success of your business. By following these tips, you can get started on the right track and avoid costly mistakes.
Frequently Asked Questions About Restaurant Accounting
Do Restaurants Need Bookkeeping?
Bookkeeping is often thought of as something only big businesses need to worry about. However, even small businesses like restaurants can benefit from keeping accurate financial records. Here are five reasons why bookkeeping is important for restaurants:
- It helps you track your expenses and income.
- It helps you identify areas where you may be overspending.
- It enables you to make informed decisions about menu pricing and other financial matters.
- It provides valuable information for tax purposes.
- It gives you a better understanding of your overall financial picture.
Do Restaurants Have Accounts Payable?
Yes, restaurants have accounts payable. This account is used to track money that the restaurant owes to suppliers and other creditors. Accounts payable include other debts, such as outstanding utility bills or rent payments.
What Are the 3 Types of Accounting?
There are three main types of accounting: financial, managerial, and tax.
- Financial accounting focuses on the financial statements that are prepared for external users.
- Managerial accounting provides information that managers within the organization use.
- Tax accounting focuses on the tax implications of transactions.
What Is the Biggest Expense for a Restaurant?
One of the biggest expenses for a restaurant is food. Food costs can vary greatly depending on the type of restaurant, the location, and the menu. Other significant expenses for restaurants include labor, rent, and restaurant marketing.
Let Your Restaurant Account for You
In the end, it all comes down to making sure that the money coming in is equal to the money going out. Whether you’re dealing with cash or credit cards, accurate accounting goes a long way toward ensuring your restaurant remains a success story.