Pen, paper and tablet with restaurant employeeSuccessfully closing out a period can start the domino effect for proactively operating a restaurant versus missed opportunities for the following periods. The purpose of the Period End Financial Close is to verify accuracy so you can understand where your money is going. This enables you to make quicker, more educated business decisions. When Closing out the period, it should start with a review of the financial statements; The Profit & Loss Statement, The Balance Sheet, and The Cash Flow Statement. Within each statement, there are even more defined areas of focus that should pop out to an operator as a must-watch, for success. In this post, we discuss two key accounts to focus on when conducting a Period End Financial Close: Credit Card Tips Payable and The House Bank.

Closing Out Credit Card Tips Payable

Credit Card Tips Payable are tips that you collect throughout the week and payout to your employees on their paychecks. When paying out Credit Card tips on checks, having a weekly pay frequency is critical to ensure proper cash flow. This goes for both the employees and the restaurant. Additionally, properly recording and reflecting Credit Card Tips Payable is critical because payroll compliance should be a top priority for any business. The payroll should be compared to what was recorded as collected prior to submitting to avoid payroll discrepancies and audits.

What causes Tips Payable to go out of balance?

  • When recording the cash allocation for the day and recording sales, the tips paid out through payroll vary from the tips that were entered
  • The tips on the Balance Sheet hold a positive balance
    • This means that money has been collected from guests but not paid to employees
  • The Balance Sheet holds a negative balance
    • This means that more money has been paid out to employees from the balance collected from guests

How Can You Correct Tips Payable Being Out Of Balance?

If the balance is positive:

  • Determine which employees were shorted the tips on payroll
  • Pay the balance owed on the next payroll
    • This clears out the balance remaining on the Balance Sheet

If the balance is negative:

  • Determine if you are able to recoup the overpaid funds from the employee
    • The ability to do this will depend on state labor laws and regulations
  • If you can recoup the funds
    • Communicate to your accountant the name of the employee and the incorrect amount
      • They will record this for bank reconciliation
      • Additionally, they will provide the total amount to recoup, inclusive of all tax considerations
  • If you are not able to recoup the funds
    • Ask your accountant to move the balance from the Balance Sheet account to the appropriate expenses account
      • Example: Payroll Other or Bad Debt

Best Practices for closing out Tips Payable:

  • When recording credit card tips, review the total amount recorded via sales entries
    • Ensure they match the total on the payroll
  • Review the previous week’s Balance Sheet
    • Ensure that no balance exists prior to sending payroll
  • The quicker an issue with pay is isolated and resolved, the easier it is to track down and allocate the appropriate funds to the applicable individuals

RASI Tips Payables graphic




Closing Out The House Bank

Another key account to review at the close of a period is your House Bank. The House Bank is inclusive of all the money within the 4 walls of the restaurant. This is typically any money in your safe and in your drawers. Keeping House Bank at the correct balance is important because it represents money that you own as a business (an asset). Balance Sheet accounts roll year over year. Therefore, if this balance is not accurate then adjustments will need to be provided at year-end. In addition to avoiding adjustments, you can see where each penny of your cash is living and verify that all cash deposits make it in full to the bank.

What causes the House Bank to go out of balance?

  • Recording Paid Outs as House Bank cash is used, but not recording the reimbursements to bring the House Bank back up to balance
  • Incorrect use of Server Tip Short and House Bank Reimbursement through the sales transmittal
  • Incorrect use of House Bank through Bank Reconciliations

How Can You Correct the House Bank Being Out Of Balance?

If The Balance Sheet account is overstated (positive above actual cash):

  • Communicate with your Accountant what item(s) were purchased to accurately reflect the expense and reduce the House bank balance
  • If no purchase was made, review the Trial Balance to determine any incorrect coding or activity
    • Once identified, ask your Accountant to make the necessary adjustments

If The Balance Sheet account is understated (below actual cash):

  • Review the trial balance to determine the activity that is incorrectly stated to that GL
    • Communicate any adjustments needed with your Accountant

Best Practice for Closing Out The House Bank:

  • Review the GL balance on a weekly basis to ensure that all daily cash activity is accurately represented
  • Keep an eye on items that are in your House Bank that don’t belong in your restaurant cash

RASI House Bank graphic