Independent restaurant owners often do their own bookkeeping. Even if they hire a professional accountant at the end of the year, they can save a considerable amount of money by taking care of the weekly tasks themselves.
Setting up a chart of accounts to suit the needs of the restaurant generally requires customizing the default options for any accounting program. The selection of sales and cost of goods accounts in most systems does not provide for the separation of the categories of food and beverages that are needed.
Even the leading small business accounting program, while having a default selection for restaurants, does not provide all of the accounts that most restaurant owners require. Also, many of the expense accounts that are added are rarely used, causing confusion during data entry and not helping with the business finance overview.
The National Restaurant Association publishes a book titled Uniform Accounting System 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 of classifying accounts.” It points out that most restaurants won’t use all of the categories listed, and it also notably lacks a breakdown of inventory and cost categories beyond “food” and “beverages.” Many restaurant owners want further separation of those 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 does not display account numbers, you should have an option on a setup screen to enable 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 range of 1000 and income accounts in the range of 4000. In systems with many itemized accounts, 5-digit numbers can be used to allow for more subcategories, but that is rarely necessary for a small restaurant.
Typical number ranges used by many accounting systems are as follows:
Asset accounts: 1000-1999
Liability accounts: 2000-2999
Capital accounts: 3000-3999
Income Accounts: 4000-4999
Cost of Goods: 5000-5999
“Other” accounts: 8000-9999
Asset accounts include cash, bank accounts, inventory, and everything else you own.
It is common to assign the first account number, 1000, to Cash, since they are generally ordered, within each group, by liquidity (ease of conversion to cash).
A separate account must be used in the chart of accounts for each bank account maintained for the company. If business deposits take a few days to reach the bank, a business account can be used. Also, if checks are accepted and not processed electronically, an account must be created for the checks to be deposited.
New accounts are typically numbered 10 digits apart, so your first two bank accounts can use 1010 and 1020 as account numbers in the chart of accounts. Leaving spaces between the numbers makes it easy to add another account later and place it in the sort order in any position.
Asset accounts can be numbered as such:
- 1000 cash
- Main bank account 1010
- 1020 bank account # 2
- 1060 Business Deposit Account
- 1080 checks received
- 1100 accounts receivable
- 1200 Food Inventory
- 1210 Meat Inventory
- 1220 Poultry Inventory
- 1230 Seafood Inventory
- 1240 Inventory of dairy products
- 1250 Product Inventory
- 1260 Bakery Inventory
- 1270 Frozen Inventory
- 1280 Dry & Canned Grocery Inventory
- 1320 Beverage inventory
- 1330 Liquor Inventory
- 1340 Beer Inventory
- 1350 Wine inventory
- 1360 Inventory of merchandise
- Inventory of consumables and bars of 1380
- 1400 Prepaid expenses and advances
- 1450 Recycle return value
Assets that have a useful life of several years or more are called long-term assets. This also includes any property.
- 1500 Fixed assets
- 1510 Land and construction
- 1520 Automotive
- 1530 Furniture accessories and equipment
- 1540 Improvements to leased properties
- 1600 Accumulated depreciation
- 1700 Capitalized start-up expenses
- 1800 security deposits
Liability accounts include things like credit cards and accounts payable to suppliers. It also includes money that has been received for things like taxes owed to the state, tips owed to employees, and gift cards sold but not yet redeemed. Real estate loans and other major types of financing are subcategorized as long-term liabilities.
Liability accounts can be numbered as:
- 2000 accounts payable
- 2110 Credit Card
- 2120 Credit card no. 2
- 2130 Credit card no. 3
- 2140 Credit card no. 4
- 2210 Sales tax payable
- 2220 Second tax to pay
- 2250 Payroll liabilities
- 2260 Second payroll liability
- 2280 Tips Retained
- 2300 Gift cards and certificates
- 2350 Customer loans
- 2400 notes to pay
- 2500 Other debt
The investment of the owners in the company is represented in the equity accounts. For a corporation, this includes equity. Indeed, it is the money that 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 capital accounts could be listed:
- 3000 Owning capital
- 3100 Common Shares
- 3300 retained earnings
Sales are included in the general category of income accounts. Obviously, a restaurant will want separate categories for food and beverage sales, and may want a greater separation for beer, wine, and spirits sales.
Typical income accounts are:
- 4000 sales revenue
- 4200 Food Sales
- 4320 Beverage sales
- 4330 Sale of spirits
- 4340 Beer sales
- 4350 Wine sales
- 4360 Merchandise sales
- 4500 Catering and contracts
- 4,700 Other operating income
- 4900 Discounts
One difference between the NRA’s recommendations and many other lists involves the location of the “other income” accounts. This may include income from sources such as hedging expenses, games or vending machines, and banquet room rentals. 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 subcategory of expenses, it makes sense to avoid putting an income category in the middle of the range from COGS to expenses. Only one account has been placed on this list within the 4000 range.
Putting the discounts in the income category implies that this will be a “against” account. Where most categories of sales will have a credit balance, discounts will typically have a debit balance.
Cost of Goods Accounts
Cost of Goods accounts, also called Cost of Sales or Cost of Goods Sold, represent purchases of food and beverages to provide 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 accounts, as the last 3 digits of each COGS category are the same as the last 3 digits of the associated inventory account.
A list of costs of goods could include:
- 5000 Cost of sales
- 5200 Meal cost
- 5210 Meat cost
- 5220 Poultry cost
- 5230 Seafood cost
- 5240 Cost of dairy products
- 5250 Cost of production
- 5260 Bakery cost
- 5270 Cost frozen
- 5280 Cost dry and canned grocery
- 5320 Cost of drinks
- 5330 Liquor cost
- 5340 Cost of beer
- 5350 Cost of wine
- 5360 Merchandise cost
- 5380 Bar and consumable cost
- 5600 Delivery and direct labor cost
- 5700 merchant fees
This example separates expense accounts into three main categories: payroll expenses and other expenses. Payroll expenses are grouped in the 6,000 range, with other operating expenses in the 7,000 range. Overhead expenses such as rent, taxes, and amortization are in the 8,000 range.
While the accounts should be broken down at least enough to separate the tax lines, the combination of accounts that are used infrequently will make the overview much easier to understand. The following list combines several categories that are often separated into other charts.
You should check with your accountant or tax preparer to make sure that everything you combine does, in fact, share the same tax line.
The Inventory Loss / Waste count has slipped below the 6000 marker, as some may consider it to fall into the Cost of Goods categories.
- 5800 Inventory Loss / Waste
- 6000 Labor expenses
- 6,100 Management salaries
- 6,200 staff salaries
- 6300 Contract work
- 6400 Commissions paid
- 6500 Employee benefits
- 6600 Workers’ Compensation Insurance
- 6,700 Employer payroll taxes
- 6,800 Payroll Processing Expenses
- 7,100 Direct operating expenses
- 7110 China – Glassware – Cutlery
- 7120 Kitchen and restaurant supplies
- 7130 Cleaning supplies and expenses
- 7140 Decorations and supplies for guests
- 7150 Laundry – Bedding – Uniforms
- 7160 Fees – Permits – Licenses
- 7200 Pest – Security – other contract
- 7250 POS – Technical Support – Online Service
- 7300 Marketing
- 7310 Print and media advertising
- 7320 Promotional events
- 7400 Car and travel
- 7500 Music and entertainment
- 7600 Repairs and maintenance
- 7700 Utilities
- 7750 Telephone and network connection
- 7800 General and Administrative
- 7810 Bad Debts: More or Less
- 7820 Bank fees
- 7830 Insurance
- 7840 Interest
- 7850 Professional fees
- 7890 Misc. Office expense
- 8100 Rental and occupancy costs
- 8200 Equipment rental
- 8600 Sales tax paid on purchases
- 8700 Amortization
- 8,900 Other expenses
- 9000 Income tax
The only remaining items to account for are the sale of significant assets, other income from sources in addition to restaurant operations (such as investments or subleasing space), and a placeholder account for transactions where the business owner needs the help of your accountant.
- 9500 Gain / Loss on sale of assets
- 9,900 Other income (non-operating
- 9999 Ask my accountant