What Is a Chart of Accounts?
A restaurant chart of accounts is a structured financial statement, consisting of categorized revenue and expenses. By convention, the chart of accounts is broken up into sections for (at a minimum) operating revenue, assets, liabilities, operating expenses, and equity, with additional categories that vary by a business’s unique needs.
The chart of accounts format is coded numerically by section. The standard is for major types of accounts to be separated by the thousands, and for subtypes to be separated by tens or hundreds. For example, if all your assets were coded in the 1000s. Then its subtypes would appear as Bank Account 1 1000, Bank Account 2 1010, Accounts Receivable 1020, and so on and so forth.
An example of various accounts you would need to include within your restaurant chart of accounts takes this general shape:
- Asset accounts
- Liability accounts
- Equity accounts
- Revenue accounts
- Cost of goods
- Other accounts
It’s worth noting that you and your accountant have a fair bit of freedom in determining exactly how you structure your restaurant chart of accounts. You should subdivide your accounts into greater specificity into the areas that matter most to your restaurant. For instance, if you sell a lot of beverages, you may want to break that down into asset accounts for non-alcoholic beverages, beer, wine, and liquor.
Detailed Walkthrough of a Chart of Accounts
Let’s examine the major sections of the chart of accounts and how they specifically pertain to a restaurant business. We’ll proceed according to the standard chart coding sequence. We begin the restaurant’s chart of accounts with the asset accounts.
Asset accounts capture all the dollar value-holding accounts of the business, such as bank accounts, cash, food and beverage inventory, and accounts receivable. They are the first major section of the restaurant chart of accounts balance sheets. Usually, asset accounts are coded so that 1000 is cash, and then asset subtypes follow by order of liquidity.
Liability accounts consist of money owed to other businesses and the government, like accounts payable, credit card balances, tax withholdings, etc.
Equity accounts record money the business owes to its investors, whether the ownership group is made of a few individuals or an entire class of shareholders. Common categories here are owner capital, common stock, and retained earnings.
Income accounts list all your revenue sources, such as food and beverage sales, merchandise sales, and event rental revenue. These categories should be broken down into as many subtypes as you have distinct sources of income.
Cost of Goods accounts
Also known as Cost of Goods (COGS) or Cost of Sales (COS), this section of the chart of accounts captures your inventory. All the ingredients and supplies that go into your food and beverages should be listed. Example subtypes include seafood cost, bakery cost, meat cost, etc.
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Payroll expense accounts
Payroll expenses are labor costs, such as wages, tips, benefits, and payroll taxes.
Operating expense accounts
Operating expenses are all the consumables and recurring expenses required to operate the restaurant, such as cleaning supplies, laundry, uniforms, china, and glassware. Marketing and promotional expenses fall into this category as well.
Overhead expense accounts
Overhead expenses consist of rent and occupancy charges, equipment rentals, and amortization.
Other accounts capture everything that isn’t well described by the previous categories, such as income from the sale of assets, revenue that doesn’t come from regular operations, and transactions the owner wants to flag for the accountant to review.
How Does Software Improve Managing Your Chart of Accounts?
Now that we’ve examined the chart of accounts in detail, you may be wondering how to accurately categorize and record all these transactions during the regular course of business. It looks like a full-time job just to keep the chart up to date! Well, it’s here that software comes to the rescue. A modern restaurant accounting software solution can integrate with your point-of-sale system (POS) to record and automatically categorize your sales transactions, your labor expenses, and any other data that passes through the POS.
Software-based restaurant accounting offers clear income and expense categorization based on standardized, repeatable processes. There’s no worry that one manager calculates things one way and another manager in a different way—instead, your data is precisely managed according to predefined formulas.
Beyond calculating the chart of accounts, a good restaurant management system will combine payroll and accounts payable with KPI and reporting features to make a one-stop shop for restaurant financial management. RASI stands out in this respect as the leading all-in-one solution for the back office!
How Does Understanding Your Chart of Accounts Help Restaurant Profitability?
As a restaurant operator, it’s critical that you understand your sources of revenue, your expenses, and the balance between the two. The chart of accounts is a comprehensive method of reviewing these critical performance indicators. Having a solid grasp of your chart of accounts gives you the information to make operational decisions that are fully informed by financial data.
Particular attention should be paid to your COGS and Labor Expenses, i.e. your Prime Costs. A restaurant’s profitability is often made or lost based on the management of these accounts. A detailed knowledge of your COGS and operating expenses is a requisite to stabilizing or reducing your ongoing expenses in these areas. The chart of accounts provides a helpful starting point for your investigation.
Once you have a handle on your costs, it’s time to dive deep into your sales data (asset accounts). A thorough review of your sales by subcategory is a good jumping-off point. You can then take it a step further and examine your POS data to see how your menu is performing, dish by dish. This sets you up to work with your chef on menu engineering for greater profit.
Selecting Software to Manage Your Restaurant Chart of Accounts
The restaurant chart of accounts is a great vantage point from which to manage restaurant finances, as it is a high-level overview of all the key accounts that make up your business. To use your chart on a regular basis, you want software that makes it as easy as possible to maintain accurate, continuously updated figures. RASI integrates with your POS to flow data directly into our accounting system without the need for tedious, error-prone manual data entry. We also go far past the chart of accounts, with comprehensive coverage of accounting, payroll, cash management, and operational metrics.
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