Restaurant-Specific Accounting Challenges

There are unique challenges when running a restaurant business. They are:

1. Accounting for Tips

Patrons will include tips in their payments. Is that considered restaurant income? How about paying out those tips to your employees, are those counted as wages? Restaurants can have different methods of tip handling. Whether it’s pooling, mandatory or not, split, or tips by paycheck vs. cash tips—it can be tricky keeping your employees happy while maintaining an accurate ledger and accounting for payroll taxes.

2. Inventory Management

Restaurants must manage an inventory of raw materials that will be converted into a final product that is sold to customers. Restaurant inventory management allows you to account for and carefully manage the value of these raw materials on your balance sheet to minimize the cost of goods sold.

And restaurants need to take inventory counts as frequently as daily, weekly, or monthly—especially as inventory is more prone to waste, spoilage, and theft. These inventory counts are crucial in calculating the cost of goods sold which is a fundamental KPI in the restaurant industry.

3. Profit and Loss (P&L) or Cash Flow Statements

Knowing how your restaurant is preforming on a monthly and weekly basis allows more flexibility over your spending and budgetary goals before it’s too late to take action.

A week-to-week view gives insight to your sales and cost trends, making it easier to control your cash flow and know where your finances stand at all times. 

4. Prepaid Accounts

It’s important to consider how to account for monthly or annual expenses. For example, if your restaurant’s Point-of-Sale software costs $1,200 a year to support and the provider bills you annually in June, you don’t want to reflect that entire expense in June. Instead, you’ll want to distribute it across multiple periods. Use a Prepaid Expense account to hold the balance and each month, chip away at it, moving 1/12 of the amount to an Expense GL code. This is a more accurate reflection of your monthly costs.

5. Vendor Credits/Short Pays

Sometimes a delivery doesn’t include everything you’ve been billed for or items you’ve purchased from your vendor don’t meet your quality standards for whatever reason.

In those cases, you should request a vendor credit and adjust the invoice total. Ultimately, you need to account for vendor credits and ensure you’re not overpaying for goods you didn’t receive. Keeping proper documentation on vendor credits will help resolve any disputes when the vendor submits a monthly vendor statement that you must reconcile against all invoices from that vendor.