Top Restaurant Accounting Tips: Closing Out Capital Expenditures & Preopening Expenses

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Successfully closing out a period starts the domino effect for proactively operating a restaurant versus missed opportunities in the following periods. The purpose of the Period End Financial Close is accuracy verification to highlight where your money is going. This enables you to make quicker, more educated business decisions. To close out a period, begin with a review of the financial statements; The Profit & Loss StatementThe Balance Sheet, and The Cash Flow Statement. Within each statement, defined areas of focus should pop out to an operator as a must-watch for success. In this episode of The Tip Share, RASI Client Advisor, Orrin Snyder discusses a few key items to concentrate on when conducting a Period End Financial Close: Capital Expenditures & Preopening Expenses.

Closing Out Capital Expenditures:

Capital Expenditures reflect the value of items within your restaurant. These can be depreciated on the year-end tax return by your CPA. These will include money spent to buy, maintain, or improve fixed assets such as building, signage, cooking equipment, furniture & fixtures, and POS equipment. Capital Expenditures generate a long-term return and are understood as an investment. This is important when selling the business or presenting the business worth to potential investors.

What causes Capital Expenditures to reflect an incorrect balance?

  • When small restaurant expenses are coded to the asset accounts instead of the expense accounts
  • When questions that appear on the bank reconciliation are miscoded

How to correct inaccurate balances in the Capital Account:

 If the Capital Account is overstated (more than what you own):

  • Review the Trial Balance to determine any incorrect coding or activity. Look specifically for small balances below the asset threshold that should be expensed to the Profit & Loss Statement
  • Once the incorrect balances are identified, send a Support Request to Accounting with the needed adjustments

If the Capital Account is understated (less than what you own):

  • Review the expenses on the P&L Trial Balance to determine any incorrect activity. If any items are miscoded, determine which capital asset account they need to be reclassed to
  • Speak with your account (RASI Clients: send a Support Request to Accounting) with any needed adjustments

Best Practices within Capital Expenditures:

  • Verify accounts payable prior to submission to ensure that all GL Distributed invoices are properly coded
  • Review the Balance Sheet on a frequent basis and monitor the activity coded to the Capital Asset Accounts
  • RASI Clients: Review “How to Record Preopening Expenses” and reach out to your RASI Client Advisor with any questions

Capital Expenditures

WATCH THE FULL VIDEO BELOW!

Closing Out Preopening Expenses:

Preopening Expenses reflect the total startup costs associated with opening your restaurant. These are considered Capital Expenditures and can be amortized on the year-end tax return by your CPA. These expenses can range from training payroll costs to food preparation to utilities. Reflecting expenses on the Balance Sheet will generate a long-term return and show the true business value for potential investors.

What causes Preopening Expense Accounts to reflect an incorrect balance?

  • Expenses purchased prior to the first day of sales are coded as expenses instead of preopening expenses
  • Questions on the bank reconciliation are miscoded
  • Expenses purchased after the first day of sales are entered as preopening expenses instead of expenses on the P&L

How to correct inaccurate balances in a Preopening Expense Account:

If the Preopening Expenses are overstated (more than what you own):

  • Review the Trial Balance to determine the incorrect coding or activity. Search the specific date range from the start of bookkeeping to doors open, only expenses incurred in that time frame should be recorded to the Balance Sheet Accounts
  • Once the incorrect activity is identified, send a Support Requests to Accounting with any adjustments needed to move expenses to the Profit & Loss Statement

If the Preopening Expenses are understated (less than what you own):

  • Review the P&L Trial Balance to identify any incorrect coding or activity. Search the specific date range from the start of bookkeeping to doors open, all expenses in that time frame should be coded to the Balance Sheet Accounts
  • Once the incorrect activity is identified, speak with your accountant (RASI Clients: send a Support Request to Accounting) with any adjustments needed to allocate expenses to the Balance Sheet

Best Practices within Preopening Expenses:

  • Verify accounts payable prior to submittal and verify that all GL Distributed invoices are properly coded
  • Review the Balance Sheet on a frequent basis and monitor the activity coded to the asset accounts
  • RASI Clients: Review “How to Record Preopening Expenses” and reach out to your RASI Client Advisor with any questions

Preopening Expenses

LISTEN TO THE FULL PODCAST EPISODE BELOW!

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