Key Points

• Most restaurants should use cash accounting instead of accrual accounting
• Restaurants typically don’t have accounts receivable
• Most payments are credit card payments, be ready to break down these payments for accounting purposes

So, you’ve just started your new restaurant.  You’ve spent hours preparing the perfect menu, preparing the venue, and hiring the staff.  But before you open your doors, be sure you have your bookkeeping practices ready.  Restaurants have their own quirks that come with managing the restaurant’s books.

Should a Restaurant use Cash or Accrual Accounting?

Most restaurants should use cash accounting.  This is because most restaurants receive payment as soon as they sell the product.  Accrual accounting really only works when you have accounts receivable.   However, there are cases when a restaurant may want to use accrual accounting.

One example if a restaurant pre-pays for their goods, then it may also make sense to do accrual accounting.  High end restaurants for example may pre-pay for specialty food.  Restaurants that have planned catering gigs like corporate events or government catering may also pre-pay for food.  These restaurants may benefit from accrual accounting.

Another example is if a restaurant actually does have accounts receivable.

Do Restaurants have Accounts Receivable?

For the most part, restaurants do not have accounts receivable.  This is because restaurants typically receive payment as soon as the food order is complete.  There are exceptions though.  Restaurants that do catering may receive payments 30 days after completing the catering services.  For fast food chains or sit-down restaurants, they prepare food and receiving payment once the food has been made. 

Some of our clients prepare food for schools.  In this example, the client provides a catering service to the schools on an on going basis.  These clients get paid on a weekly basis, meaning that they may have invoices in accounts receivable.

Is Food in a Restaurant a Fixed Asset?

Food is not a fixed asset on your balance sheet.  The inventory of food you hold, like cans of tomatoes or sacks of potatoes, are current assets.  Any restaurant machinery you have, such as meat slicers, ovens, or refrigerators, are fixed assets.

How to Track Sales and Inventory

The best way to track is point-of-sale, but some restaurants still use pen and paper.  Point of sale is the best way to keep track of inventory.  The restaurant will typically use a first-in-first-out methodology of managing inventory.  For example, the first sack of potatoes in will be the first sack of potatoes used for cooking.

When tracking sales, there are multiple tax responsibilities to consider within your point-of-sale system:

• Payroll tax
• Sales tax
• Income tax
• Tips, which must have payroll tax and social security tax considered.

How to account for tips?

Since most restaurant bills are made using a credit card, tips are usually handled with a credit card as well.  How it works is that billing payment systems process the payment, take their fee, and send you the rest as your payment.  But the payment processing system doesn’t break out what was the payment and what was a tip.  They send the whole amount to your bank account.

As the restaurant owner, its you responsibility to take out of each payment what’s the sales tax, what’s the tip, and what is payment.

Tips are taxable.  And there is a minimum wage system.  Typically, in the restaurant industry, everybody expects a certain amount of tips to come in, so meeting the minimum wage requirement is typically not an issue.  Some restaurants are even adding the tips automatically to the bills. Tips should account for the minimum wage.  Tips also have social security taxes.

All you’re going to see on your bank statement is that the credit card company deposited money.

Should I outsource my restaurant bookkeeping?

From day one, your focus should be on managing your restaurant.  Your cook cooks the food, your waiter waits the tables, and your bookkeeper keeps the books.  Restaurants have unique challenges that come with their bookkeeping that is best handled by a bookkeeper.  As the owner of a restaurant, your focus should be on customer service, marketing, and staff.