2021-03-09 13:46:24 Accounting & Bookkeeping English https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2021/03/restaurant-accountant-photo-qbo-ca-desktop.jpeg https://quickbooks.intuit.com/ca/resources/finance-accounting/restaurant-accounting-for-canadian-businesses/ Restaurant Accounting for Canadian Businesses

Restaurant Accounting for Canadian Businesses

9 min read

Those who open a restaurant tend to do so out of love for food and a passion for making cultural cuisines and delivering a satisfying experience to customers. Restaurant owners aim to create a feast for the senses, even if they may lack the financial senses to cover the business’s accounting system.

When it comes to the financial side of your restaurant, who is in charge of your accounting? Establishing your business’s accounting needs and requirements is an essential aspect of running a restaurant. Here is what you need to know about restaurant accounting to help you decide how best to tackle these necessary tasks.

 

<<Back: How to Open a Restaurant 

Next: 7 Ways to Use Restaurant Accounting Software>>

 

Who Does Bookkeeping for Restaurants?

When deciding who will be responsible for the restaurant’s bookkeeping and accounting needs, there are a few different options available to you. Sometimes, restaurant owners will be responsible for their own books, but only if they have the skills and knowledge to do so effectively.

Typically business owners will hire someone as the restaurant’s bookkeeper or accountant while using accounting software to help them track and manage their finances. Other times, restaurants will outsource their accounting responsibilities, meaning they will hire a third-party service to cover their financial needs.

The person responsible for the business’s accounting requirements, whether a trained accountant or otherwise, must accurately track the cash flow of all financial transactions, prepare financial statements and reports, and knows how to create and file tax returns each year. They must also know how to read and write journal entries, and accounting ledgers.

Therefore, the role of restaurant accountant or bookkeeper must be filled by someone with financial literacy. This means they need to possess the skills to read and understand financial statements and reports to gain business insights and make appropriate decisions concerning the business’s accounts.

Restaurant Accounting Methods

Whoever is responsible for your restaurant’s accounting system will need to make some decisions regarding the business’s books. Whether conducting the finances yourself or hiring another to do so, as the restaurant owner, you still need to determine the specific accounting methods your business will adhere to.

Therefore, you must choose to use either single-entry or double-entry bookkeeping in your business accounts, dictating how you track your revenue and expenses throughout the business’s accounts. You will also need to determine if your restaurant will use the cash or accrual accounting method to track and record your finances from period to period.

Tracking the Restaurant’s Cash Flow

The cash flow of a restaurant refers to all money flowing into and out of the business. When a customer pays for a meal, that is cash flowing into your restaurant by way of revenue. Paying operating expenses such as employee wages and equipment rentals is cash flowing out of the business.

To accurately track cash flows, the one responsible for your restaurant accounting will need to manage the business’s chart of accounts. This chart of accounts refers to the various groupings of similar transactions that span the entirety of the business. The most important accounts for a restaurant covered under this chart of accounts include:

Sales: All revenue generated from the restaurant must be accounted for here. Separating your sales into food and beverages can help improve tracking and reporting.

  • Inventory: Restaurants have two main types of inventories within their accounts: perishable inventory, such as food and drinks, and supply stock, covering items used in the operation of the business, such as serving utensils and cleaning supplies.
  • Payroll: The payroll account covers all employee wages and can be tricky to manage as there are many moving parts. Many restaurants use payroll software to help them process wages to ensure the proper remuneration of full-time and part-time employees, as well as employee benefits deductions.
  • Accounts Payable: Covers all supplier invoices and orders, meaning this account tracks what a restaurant owes to its suppliers. Grouping supplier expenses together and tracking when invoices are due can help you pay your bills on time and keep a good working relationship with your much-needed suppliers.
  • Cash Flow: This account is directly linked to all accounts listed above, as it deals with the cash coming in and out of the business. Restaurant owners will want to know their cash standing at all times to ensure the financial health of their business.
  • Cost of Goods Sold: Includes all costs associated with the production of your restaurant’s food dishes, including perishable items and supplies. Cost of goods sold (COGS) should be a separate account from other business expenses, such as operating expenses like rent and utilities.

What is Cost of Goods Sold in a Restaurant?

When considering the cost of goods sold (COGS) for restaurants, this figure essentially represents how much it costs the business to create its food dishes. COGS is intimately connected to a business’s revenue, inventory, and overall profit margins, making the cost of goods sold a must-know formula for all owners and managers.

The restaurant business COGS represents the overall cost of all ingredients and perishable inventory used to create menu items. Typically, a third of a restaurant’s gross revenue is used to cover these expenses. However, such figures will fluctuate from month to month and year to year, so it is vital to keep an eye on your restaurant’s COGS at any given time.

To calculate COGS, you need three pieces of information. The first is the beginning inventory, referring to your inventory’s total value at the end of the previous period. The second is the purchased inventory, meaning the total value of inventory purchases made for this specific period. And third, the ending inventory, which can be determined by calculating the total value of stock leftover from the same period. With these figures in mind, the cost of goods sold formula is as follows:

Beginning inventory of food and beverage + inventory purchases – ending inventory = COGS 

By extension, you can break this formula down from goods sold to food or beverages sold to help you determine the restaurant’s total food costs and beverage costs for that period. Therefore the cost of food sold formula and cost of beverages sold formula are as follows:

Beginning inventory of food + purchases – ending inventory of food = Cost of Food Sold 
Or
Beginning inventory of beverages + purchases – ending inventory of beverages = Cost of Beverages Sold

COGS and Perishable Inventory

One way to keep a handle on your restaurant’s COGS is to have your inventory management under control. Perishable inventory can be tricky to manage as this type of stock has a shorter shelf life than other types of inventory. Monitoring your perishable stock and ensuring food items are used before they go bad can help eliminate waste and lower your overall cost of goods sold.

Common Restaurant Financial Statements and Reports

When covering the business’s accounting responsibilities, one must know how to read financial statements and reports. Such skills are necessary to manage these reports and file the restaurant’s tax returns income tax time.

Listed below are some of the most important financial statements and reports that restaurants need to know how to generate and use:

  • Daily sales report
  • Income statement
  • Balance sheet
  • Restaurant inventory report
  • Chart of accounts and accounting ledgers
  • Cash flow statement
  • Tip log

Daily sales report

This daily report should provide you with a snapshot of the day’s earnings, including revenue generated and how it was earned. Many restaurant sales reports will take stock of the day’s food sales, beverage sales, taxes collected, and tips received. The sales can also be divided by payment types, such as credit card, cash, and other methods.

Income statement

The restaurant income statement, also known as a profit and loss statement, measures the financial performance in a given period. Your restaurant should generate an income statement on a monthly, quarterly, and annual basis. This statement shows a business’s net income by tracking all revenues and expenses and gains and losses.

Balance sheet

Balance sheets help small businesses measure their financial position within a period. This document is divided into two parts, with all of the business’s assets (including cash, inventory, property, and equipment) tracked on the left side and all liabilities (restaurant expenses) and owner’s equity on the right. When calculated, the total assets should equal the total liabilities and equity of the restaurant.

Restaurant inventory report

Inventory reports help restaurants keep tabs on their stock items, tracking what is being used and replenished each month. If you’re ordering inventory weekly, it is best to do this report at the same time, helping your restaurant track unit costs and total costs of inventory at the ordering intervals.

Chart of accounts and accounting ledgers

As previously mentioned, the chart of accounts lists all accounts associated with the business, grouped together by similarities. The accounting ledgers are where these account transactions are recorded and tracked. The information stored in the accounting ledgers helps to populate the data within income statements, balance sheets, and cash flow statements.

Cash flow statement

This statement tracks the restaurant’s cash flows, summing up what is coming into and out of the business accounts in a given period and the current amount of cash on hand to pay for the operational expenses. Many restaurants generate a weekly statement to help them keep tabs on their financial position at all times.

Tip log

A less formal documentation but important nonetheless, the tip log records all tips made by your workforce. This information is required come tax time, as tip income must be taxed appropriately depending on the restaurant’s gratuity policies.

Should You Outsource Accounting for Restaurants?

Sometimes small and medium businesses will outsource some of their internal processes if they do not have the human resources or expertise to cover such things themselves. For that reason, restaurant owners can decide to outsource accounting responsibilities to accounting services and bookkeeping services if they are not comfortable doing these tasks themselves.

That being said, many business owners will turn to tools like accounting software to help them keep on top of their chart of accounts, financial statements, and tax planning, covering these responsibilities without hiring external services.

Using Restaurant Accounting Software

When it comes to the best accounting software for the restaurant industry, nothing beats the comprehensive features and intuitive interface of QuickBooks Online. As one of the most popular accounting software worldwide, QuickBooks offers businesses a whole slew of reporting and tracking capabilities.

There are more ways than one to use accounting software for your restaurant. Restaurants can use accounting software to track inventory, monitor food and beverage sales, keep track of accounts payable, process payroll, and generate financial reports and forecasts.

One of the biggest benefits of using this cloud based accounting software for your restaurant’s finances is its ability to sync with thousands of restaurant apps. Software like Click Bacon can help restaurants manage their processes while syncing with QuickBooks to track the financial side of such things.

Instead of outsourcing your business’s accounting system, why not use QuickBooks Online to help you keep an expert eye on your books. Try it free today and get your restaurant’s finances on track for the future.

 

<<Back: How to Open a Restaurant 

Next: 7 Ways to Use Restaurant Accounting Software>>

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

How to Open a Restaurant in 13 Steps

Sometimes there is nothing better than hitting the town and enjoying a…

Read more

7 Ways to Use Restaurant Accounting Software

When it comes to running a restaurant, there are a lot of…

Read more

Canadian Restaurant Tax Guide

With the tax season right around the corner, and let’s be honest,…

Read more