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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 lot of money by handling the weekly tasks themselves.
Creating a chart of accounts to meet a restaurant’s needs usually requires customizing any accounting program’s default options. The selection of sales and cost of goods sold on most systems does not provide for the necessary separation of food and beverage categories.
Even the leading bookkeeping program for small business, while it has a default selection for restaurants, fails to provide all the accounting most restaurant owners need. In addition, many of the expense accounts added are rarely used, causing confusion during data entry, and not helping with an overview of business finances.
The National Restaurant Association publishes a book called Uniform System of Accounts for Restaurants. The book provides a detailed description 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 way to classify accounts”. It states that most restaurants will not use all of the categories listed, and it notably lacks a breakdown of the list and cost categories beyond “food” and “drinks.” Many restaurant owners want those categories further separated 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 isn’t showing the account number, it should have an option on the set up screen to activate that feature.
Any account numbering system is usually grouped so that accounts of a particular type fall under a specific range of numbers. For example, assets may be in the 1000 range, and income accounts may be in the 4000 range. On systems with multiple detailed accounts, a 5-digit number may be used to allow for more subcategories, but this is rarely needed for a smaller restaurant.
Typical number ranges used by many accounting systems are as follows:
Asset Accounts: 1000-1999
Liability Accounts: 2000-2999
Equity Accounts: 3000-3999
Revenue Accounts: 4000-4999
Material Cost: 5000-5999
Cost: 6000-8000
“Other” accounts: 8000-9999
asset accounts
Asset accounts include cash, bank accounts, inventory and everything owned.
It is common to assign the first account number, 1000, to cash, as they are usually ordered by liquidity (ease of converting to cash), within each group.
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 must be created for check deposit.
New accounts are typically assigned a 10-digit number, so your first two bank accounts may use 1010 and 1020 as the account numbers in the chart of accounts. Leaving gaps between the numbers makes it easier to add another account later and squeeze it into the sorting order in any case.
Asset accounts can be numbered as follows:
- 1000 cash
- 1010 Primary Bank Account
- 1020 Bank Account #2
- 1060 Merchant Deposit Account
- 1080 checks received
- 1100 Accounts Receivable
- 1200 Food List
- 1210 Meat Inventory
- 1220 Poultry Inventory
- 1230 Seafood List
- 1240 Dairy Inventory
- 1250 Product Catalog
- 1260 Bakery Inventory
- 1270 Frozen Inventory
- 1280 Grocery Dry & Packaged Inventory
- 1320 Drink List
- 1330 Wine List
- 1340 Beer Inventory
- 1350 Wine Inventory
- 1360 Merchandise Inventory
- 1380 Bar & Consumables List
- 1400 Prepaid Expenses & Advances
- 1450 recycle return value
Assets which have a life span of several years or more are called long term assets. This also includes any immovable property.
- 1500 fixed assets
- 1510 Land and Building
- 1520 automobile
- 1530 Furniture Fixtures & Appliances
- 1540 leasehold reform
- 1600 Accumulated depreciation
- 1700 Capitalized startup expenses
- 1800 Security Deposit
liability accounts
Liability accounts include such things as credit cards and amounts owed to vendors. It also includes money that is received for things like taxes owed to the state, tips to employees, and gift cards sold but not yet redeemed. Real estate loans and other principal financing are subclassified as long-term liabilities.
Liability accounts can 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 Due
- 2250 Payroll Liabilities
- 2260 Second Payroll Obligation
- 2280 Tips Held
- 2300 Gift Cards & Certificates
- 2350 Customer Credits
- 2400 note payable
- 2500 Other Loans
equity accounts
Owners’ investments in the company are shown in the equity accounts. For a corporation, this includes shareholders’ equity. This is effectively money the business owes back to the owners. When an accounting period closes, the balance of the income and expense categories is transferred to retained earnings, which is also an equity account.
The most basic equity accounts can be numbered as follows:
- 3000 owner’s capital
- 3100 Common Stock
- 3300 Retired Earnings
income accounts
Sales income falls under the general category of accounts. A restaurant clearly wants separate categories for the sale of food and beverages, and further separation of the sale of beer, wine and liquor.
Typical income accounts are:
- 4000 Sales Revenue
- 4200 Food Sales
- 4320 Beverage Sales
- 4330 Liquor Sales
- 4340 Beer Sales
- 4350 Liquor Sales
- 4360 Merchandise Sales
- 4500 Catering & Contracts
- 4700 Other operating income
- 4900 discount
One difference between the NRA’s recommendations and many other lists involves the placement of “other income” accounts. This can include income from sources such as cover charges, games or vending machines, and banquet room rentals. Most lists place these accounts above spending in the 8000 range, but the NRA list places them in the 6000 range.
Most small places will only require a single category for other income. Since “cost of goods” is a common subcategory of expenses, it makes sense to avoid placing an income category in the middle of the range from COGS via expenses. In this list, a single account has been kept in the range of 4000.
Putting the discount in the revenue category means it would be a “contra” account. Where most sales categories will have a credit balance, discounts will typically have a debit balance.
cost of goods accounts
The cost of goods account, also called cost of sales or cost of goods sold, represents the purchase of food and beverages to provide food. Other expenses directly related to the sale 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 corresponding inventory account.
Cost of goods inventory may include:
- 5000 cost of sales
- 5200 food cost
- 5210 cost of meat
- 5220 Poultry Cost
- 5230 Seafood Cost
- 5240 Dairy Cost
- 5250 Production Cost
- 5260 Bakery Cost
- 5270 Frozen Cost
- 5280 Grocery Dry and Canned Cost
- 5320 Drinks Cost
- 5330 Price Of Wine
- 5340 Price of Beer
- 5350 Price Of Wine
- 5360 Merchandise cost
- 5380 bar and consumable cost
- 5600 Delivery and direct labor cost
- 5700 merchant fee
expense accounts
This example breaks down expense accounts into three primary categories: payroll expenses and other expenses. Payroll expenses are grouped in the 6000 range, with other operating expenses in the 7000 range. Overheads like rent, taxes and amortization are bumped into the 8000 range.
While the accounts should at least be broken down enough to separate the tax lines, combining rarely used accounts will make the overview much easier to understand. The following list combines several categories that are often separate on other charts.
You should check with your accountant or tax preparer to make sure that everything you add actually shares the same tax line.
The Inventory Loss/Waste account has been moved below the 6000 mark, as some may consider it to be related to the cost of goods categories.
- 5800 Loss/waste of goods
- 6000 Labor charges
- 6100 Management Wage
- 6200 Staff Salary
- 6300 contract labor
- 6400 commission paid
- 6500 Employee Benefits
- 6600 workers comp insurance
- 6700 employer payroll tax
- 6800 payroll processing expense
- 7100 Direct operating expenses
- 7110 China – Glassware – Flatware
- 7120 Restaurant and Kitchen Supplies
- 7130 Cleaning Supplies and Expenses
- 7140 Decoration and Guest Supplies
- 7150 Laundry – Linen – Uniform
- 7160 Fee – Permit – License
- 7200 Pest – Security – Other Contracts
- 7250 POS – Tech Support – Online Service
- 7300 Marketing
- 7310 Media and Print Advertising
- 7320 Promotional Programs
- 7400 Automobile & Travel
- 7500 Music & Entertainment
- 7600 Repair and Maintenance
- 7700 Utilities
- 7750 Telephone and Net Connection
- 7800 General & Administrative
- 7810 Bad Debts – Over/Short
- 7820 bank charges
- 7830 Insurance
- 7840 interest
- 7850 Professional Fee
- 7890 Misc. office expense
- 8100 Rent and Occupancy Cost
- 8200 Equipment Rental
- 8600 Sales tax paid on purchase
- 8700 amortization
- 8900 Other Expenses
- 9000 Income Tax
other account
A placeholder account for income from sources other than the sale of principal assets, restaurant operations (such as investments or sub-leasing space), and transactions where the business owner needs the assistance of his or her accountant. There are only balance items in the account for.
- 9500 Gain/loss on sale of asset
- 9900 Other income (not from operation
- 9999 ask my accountant
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