What is Restaurant Accounting?
Restaurant accounting is defined as the process of recording, analyzing, and interpreting financial data for a restaurant. These include booking financial transactions such as supplier invoices, payroll, POS sales, sales taxes, and accounting for overhead expenses such as rent, insurance, maintenance, and any other cost necessary and as an ordinary part of running your restaurant business.
A restaurant accountant’s responsibilities typically include the following tasks:
- Booking financial transactions in the general ledger—the master document for capturing financial transactions
- Accurately categorizing those transactions, which include expenses, sales, payroll, and many others
- Accounts Payable (i.e. processing invoices/bills and paying vendors)
- Bank Statement Reconciliation
- Creating financial statements to determine financial health including the balance sheet, income statement, and cash flow statement
- Establishing & Tracking Budgets & Benchmark KPIs such as COGS Ratios & Prime Costs
- Completing tax returns & providing tax advice and assistance
- Offering financial insights and advice
Accounting is also the means by which you manage and measure the financial health of your restaurant. It enables you to:
Track the financial performance of your restaurant by creating detailed financial statements and reviewing KPIs
For example, a cash flow statement will tell you whether or not you have enough cash flowing in to cover your expenses. And, a KPI like prime cost helps you understand how profitable your restaurant really is by analyzing labor and COGS (more on that later).
Make informed financial decisions
You can’t improve what you don’t track. Tracking your numbers and KPIs will let you know what business areas require urgent attention. For example, if your cash flow statement tells you cash flow is negative (more money is flowing in than out), you’ll know it’s time to take swift action. This action could involve reducing your monthly expenses—maybe by finding a new food supplier—increasing sales through a special promotion, or finding external financing for a cash injection.
Your budget is your future financial plan that consists of both your planned income and expenses. Proper accounting lets you create accurate budgets by giving you past financial data to predict future revenue and expenses.
Accurate accounting prevents legal disputes with the internal revenue service over incorrect numbers. It also ensures you adhere to specific accounting principles. In the United States, businesses need to follow the Generally Accepted Accounting Principles (GAAP). These are the principles, procedures, and processes companies and accountants must follow when creating financial statements.
In our next post we’ll discuss considerations specific to the restaurant industry such as handling tips and inventory.