Accounts for a Small Restaurant

Independent restaurant owners often create their own books. 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.

Setting up a chart of accounts to suit a restaurant’s needs generally requires adjusting the default options of any accounting program. The selection of sales and cost of goods accounts in most systems does not provide the necessary separation of food and beverage categories.

Even the leading bookkeeping programs for small businesses, despite having default options for restaurants, fail to provide all the accounts most restaurant owners need. In addition, many additional expense accounts are rarely used, cause confusion during data entry, and do not help the business’s financial picture.

The National Restaurant Association published a book entitled Uniform System of Accounts for a Small Restaurant. This book provides a detailed overview of the application of generally accepted accounting principles to the restaurant industry.

This book includes an example chart of accounts, but notes that “the code used here is not the only method for classifying accounts”. This indicates that most restaurants will not use all of the categories listed, nor will they have a breakdown of inventory and cost categories other than “food” and “beverages”. Many restaurant owners would like further category separation to include sub-categories such as “meat”, “seafood”, and “production”, and possibly “beer” and “wine” for the beverage category.

While many programs do not require the use of account numbers, the NRA books state that some type of account numbering system should be used. If your program doesn’t display the account number, it should have an option on the settings screen to enable the feature.

Each account numbering system is generally grouped so that certain types of accounts fall within a certain range of numbers. For example, assets might be in the 1000 range, and a revenue account in the 4000 range. On systems with multiple account details, a 5-digit number could be used to allow for more sub-categories, but that’s rarely necessary for small restaurants.

The ranges of numbers commonly used by many accounting systems are as follows:

  • Asset account: 1000-1999
  • Account liability: 2000-2999
  • Account equity: 3000-3999
  • Income account: 4000-4999
  • Item cost: 5000-5999
  • Cost: 6000-8000
  • Account “Other”: 8000-9999

Asset Account

Asset accounts include cash, bank accounts, inventory, and anything else you own.

It is common to assign the first account number, 1000, to Cash, as it is usually ordered, within each group, based on liquidity (ease of converting to cash).

A separate account must be used in the chart of accounts for each bank account maintained for the business. If a trader’s deposit takes several days to reach the bank, a merchant account can be used. Also, if a check is received and not processed electronically, an account must be created to hold the check.

New accounts are usually assigned separate 10-digit numbers, so your first two bank accounts can use 1010 and 1020 as account numbers in the chart of accounts. Leaving gaps between numbers makes it easy to add other accounts later and squeeze them into sort order at any position.

Asset accounts can be numbered like this:

  • 1000 Cash
  • 1010 Main Bank Account
  • 1020 Bank Account #2
  • 1060 Trader’s Deposit Account
  • 1080 Check Received
  • 1100 Accounts Receivable
  • 1200 Food Supplies
  • 1210 Meat Stock
  • 1220 Poultry Inventory
  • 1230 Seafood Inventory
  • 1240 Milk Supply
  • 1250 Generating Inventory
  • 1260 Bakery Inventory
  • 1270 Frozen Stock
  • 1280 Inventory Dry & Canned Grocery
  • 1320 Beverage Supplies
  • 1330 Liquor Inventory
  • 1340 Beer Stock
  • 1350 Wine Supplies
  • 1360 Merchandise Inventory
  • 1380 Bars & Consumables
  • 1400 Fees & Advances Paid
  • 1450 Recyclable return value

Assets that have a lifespan of several years or more are referred to as Long-Term Assets. This also includes any real estate.

  • 1500 fixed assets
  • 1510 Land & Building
  • 1520 Car
  • 1530 Furniture Fixtures & Equipment
  • 1540 Leasehold Increase
  • 1600 Accumulated Depreciation
  • 1700 Initial Capital Cost
  • 1800 Security Deposit

Liability Account

Liability accounts include things like credit cards and payables to vendors. It also includes money that has been received for things like taxes due to the state, tips due to employees, and gift cards that were sold but not yet redeemed. Real estate loans and other major financing are classified as long-term liabilities.

Liability accounts can be numbered as:

  • Accounts Payable 2000
  • 2110 Credit Card
  • 2120 Credit Card #2
  • 2130 Credit Card #3
  • 2140 Credit Card #4
  • Sales Tax Payable 2210
  • Second 2220 Tax Payable
  • 2250 Payroll Liability
  • 2260 Second Payroll Liability
  • 2280 Tips held
  • 2300 Gift cards & certificates
  • 2350 Customer Credit
  • 2400 Notes Paying
  • 2500 Other Debt

Equity Account

The owner’s investment in the company is represented in the equity account. For companies, this includes shareholder equity. This is effectively money that the business owes back to the owner. When the accounting period is closed, the balances of the income and expense categories are transferred to Retained Earnings, which is also an equity account.

The most basic equity accounts can be numbered:

  • 3000 Owner’s Capital
  • 3100 Common Stock
  • 3300 Retained Earnings

Income Account

Sales fall into the general category of revenue accounts. A restaurant clearly wants a separate category for the sale of food and beverages, and may want further separation from the sale of beer, wine, and liquor.

A typical income account is:

  • 4000 Sales Revenue
  • 4200 Food Sales
  • 4320 Beverage Sales
  • 4330 Sales of Liquor
  • 4340 Beer Sales
  • 4350 Wine 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 placing an “other income” account. This can include income from sources such as surcharges, games or vending machines, and banquet hall rentals. Most lists put this account in the 8000 range, above expenses, but the NRA lists put it in the 6000 range.

Most smaller locations only need one category for another income. Since “cost of goods” is a general sub-category of expenses, it makes sense to avoid placing the income category in the middle of the range from COGS through expenses. One account has been placed on this list in the 4000 range.

Placing a discount into an income category implies that it will be a “con” account. Where most categories of sales will have a credit balance, discounts usually have a debit balance.

Cost Account

The Cost of Goods account, also called Cost of Goods Sold or Cost of Goods Sold, represents the purchase of food and beverages to provide food. 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 HPP category equal the last 3 digits of the related inventory account.

The list of cost of goods may include:

  • 5000 Selling Fee
  • 5200 Food Cost
  • 5210 Meat Cost
  • 5220 Poultry Fee
  • 5230 Seafood Cost
  • 5240 Milk Cost
  • 5250 Production Cost
  • 5260 Bread Cost
  • 5270 Freezing Charge
  • 5280 Dried Groceries & Canned Cost
  • 5320 Drink Fee
  • 5330 Liquor Fee
  • 5340 Beer Cost
  • 5350 Wine Cost
  • 5360 Merchandise Cost
  • 5380 Bar & Consumption Fee
  • 5600 Shipping cost & direct labor
  • 5700 Merchant Fee

Expense Account

This example separates expense accounts into three main categories: payroll expenses and other expenses. Payroll costs are grouped in the 6000 range, with other operating costs in the 7000 range. Overheads such as rent, taxes, and amortization bump into the 8000 range.

While accounts should be split at least far enough apart to separate the tax lines, combining accounts that are rarely used will make the overview easier to understand. The following list combines several categories that are often separated on other charts.

You should check with your accountant or tax expert to make sure that whatever you are combining is, in fact, sharing the same tax line.

The Inventory Loss/Waste account has been shifted below the 6000 mark, as some might consider it to be in the Cost of Goods category.

  • 5800 Inventory Loss/Waste
  • 6000 Labor related costs
  • 6100 Management Wages
  • 6200 Staff Salary
  • 6300 Contract Workers
  • 6400 Commission paid
  • 6500 Employee Benefits
  • 6600 Workers Company Insurance
  • 6700 Employer’s Salary Tax
  • 6800 Payroll processing fee
  • 7100 Direct Operating Cost
  • 7110 China – Glass – Cutlery
  • 7120 Restaurant & Kitchenware
  • 7130 Cleaning Supply & Cost
  • 7140 Guest Decorations & Supplies
  • 7150 Laundry – Linen – Uniform
  • 7160 Fee – Permission – License
  • 7200 Pests – Security – other contracts
  • 7250 POS – Technical support – Online service
  • 7300 Marketing
  • 7310 Media & Print Advertising
  • 7320 Promotion event
  • 7400 Cars & travel
  • 7500 Music and Entertainment
  • 7600 Repair and Maintenance
  • 7700 Utilities
  • 7750 Telephone & internet connection
  • 7800 General and Administration
  • 7810 Bad Debt – Over/short
  • 7820 Bank fees
  • 7830 Insurance
  • 7840 Flowers
  • 7850 Professional fee
  • 7890 Others Office expenses
  • 8100 Rent and Occupancy Fee
  • 8200 Equipment Rental
  • 8600 Sales tax paid on purchases
  • 8700 Amortization
  • 8900 Other expenses
  • 9000 Income Tax

More accounts

The only items left to take into account are sales of primary assets, other income from sources other than restaurant operations (such as investments or sub-letting space), and replacement accounts for transactions where the business owner needs the help of their accountant.

  • 9500 Gain/Loss on sale of assets
  • 9900 Other Income (not from operations
  • 9999 Ask My Accountant