Create a chart of accounts for a small restaurant
Independent restaurant owners often do their own bookkeeping. Even if they hire a professional accountant at the end of the year, they can save a considerable amount of money by handling the weekly tasks themselves.
Setting up a chart of accounts that fits the needs of the restaurant usually requires customizing the default options of any accounting program. The selection of sales and cost of goods accounts in most systems does not provide the separation of food and beverage categories that is needed.
Even the leading small business accounting program, while having a default selection for restaurants, doesn’t provide all the accounts that most restaurant owners require. Additionally, many of the expense accounts that are added are rarely used, leading to confusion during data entry and not helping with business finance overview.
The National Restaurant Association publishes a book called the Uniform System of Accounts for Restaurants. The book provides detailed descriptions of the application of generally accepted accounting principles to the restaurant industry.
That book includes a sample chart of accounts, but notes that “the codes used here are not the only method of classifying accounts.” He points out that most restaurants won’t use all of the categories listed, and in particular lacks a breakdown of inventory and cost categories beyond “food” and “beverage.” Many restaurant owners want further separation of those categories to include subcategories like “meat,” “seafood,” and “produce,” and possibly “beer” and “wine” for beverage categories.
While many programs do not require the use of account numbers, the NRA book states that some type of account numbering system must be used. If your program doesn’t display account numbers, you should have an option on a settings screen to enable that feature.
Any account numbering system is usually grouped so that accounts of a particular type fall within a specific range of numbers. For example, assets may be in the 1000 range and income accounts in the 4000 range. In systems with many itemized accounts, 5-digit numbers may be used to allow for more subcategories, but that is rarely needed for a small restaurant.
Typical number ranges used by many accounting systems are as follows:
Asset Accounts: 1000-1999
Liability accounts: 2000-2999
Equity accounts: 3000-3999
Income accounts: 4000-4999
Cost of goods: 5000-5999
“Other” accounts: 8000-9999
Asset accounts include cash, bank accounts, inventory, and everything else you own.
It is usual to assign the first account number, 1000, to Cash, since they are usually ordered, within each group, by liquidity (easiness of conversion to cash).
A separate account must be used in the chart of accounts for each bank account maintained for the business. If business deposits take a few days to reach the bank, a business account can be used. Also, if checks are accepted and not processed electronically, an account must be created to deposit the checks.
New accounts are typically numbered 10 digits apart, so your first two bank accounts can use 1010 and 1020 as account numbers in the chart of accounts. Leaving spaces between the numbers makes it easy to add another account later and adjust it to the sort order at any position.
Asset accounts may be numbered as such:
- 1000 cash
- 1010 Primary Bank Account
- 1020 bank account #2
- Business Deposit Account 1060
- 1080 checks received
- 1,100 accounts receivable
- 1200 food inventory
- 1210 Meat inventory
- 1220 Poultry inventory
- 1230 Seafood Inventory
- 1240 Inventory of dairy products
- 1250 product inventory
- 1260 Bakery Inventory
- 1270 Frozen Inventory
- 1280 Inventory of dry and canned foods
- 1320 Beverage Inventory
- 1330 Liquor inventory
- 1340 beer inventory
- 1350 Wine Inventory
- 1360 Merchandise inventory
- 1380 Inventory of bars and consumables
- 1400 Prepaid expenses and advances
- 1450 Recycle return value
Assets that have a useful life of several years or more are called long-term assets. This also includes any real estate.
- 1,500 fixed assets
- 1510 Land and Construction
- 1520 Automotive
- 1530 Furniture Accessories and Equipment
- 1540 Improvements to leased properties
- 1600 Accumulated Depreciation
- 1700 Initial expenses capitalized
- 1800 security deposits
Liability accounts include things like credit cards and vendor payments. It also includes money that has been received for taxes owed to the state, tips owed to employees, and gift cards sold but not yet redeemed. Real estate loans and other major financing are subcategorized as long-term liabilities.
Liability accounts can be numbered as:
- 2000 accounts payable
- Credit card 2110
- 2120 Credit Card #2
- 2130 Credit Card #3
- 2140 Credit Card #4
- 2210 Sales Tax Payable
- 2220 Second Tax to Pay
- 2250 Payroll liabilities
- 2260 Second Payroll Responsibility
- 2280 Tips held
- 2300 Gift cards and certificates
- 2,350 customer credits
- 2400 promissory notes
- 2500 Other debt
The investment of the owners in the company is represented in the equity accounts. For a corporation, this includes shareholders’ equity. It is effectively the money the company owes the owners. When an accounting period is closed, the balance of the income and expense categories is transferred to Retained Earnings, which is also an equity account.
The most basic capital accounts could be numbered:
- 3000 Owner’s Equity
- 3,100 common shares
- 3,300 retained earnings
Sales fall into the general category of income accounts. A restaurant will obviously want separate categories for food and beverage sales, and may want further separation of beer, wine, and spirits sales.
Typical income accounts are:
- 4000 Sales revenue
- 4200 Food Sales
- 4320 Sale of beverages
- 4330 Liquor sales
- 4340 Sale of beer
- 4350 Wine Sales
- 4360 Dirty merchandise
- 4500 Catering and contracts
- 4700 Other operating income
- 4900 Discounts
One difference between the NRA recommendations and many other lists involves the location of “other income” accounts. This may include income from sources such as cover charges, gaming or vending machines, and banquet hall rentals. Most lists place these accounts in the 8000 range, above expenses, but the NRA list places them in the 6000 range.
Most smaller locations will only need a single category for other income. Since “cost of goods” is a general subcategory of expenses, it makes sense to avoid placing an income category in the middle of the range from COGS to expenses. A single account has been placed on this list within the range of 4000.
Putting discounts in the income category implies that it will be a contra account. Where most categories of sales will have a credit balance, discounts will typically have a debit balance.
Cost of goods accounts
Cost of Goods accounts, also called Cost of Sales or Cost of Goods Sold, represent food and beverage purchases to provide meals. Other expenses directly related to sales may be included, such as business fees or consumable cups and napkins.
The numbers used here also provide consistency across accounts, as the last 3 digits of each COGS category are the same as the last 3 digits in the associated inventory account.
A list of cost of goods could include:
- 5000 cost of sales
- 5200 Food cost
- 5210 Cost of meat
- 5220 Cost of Poultry
- 5230 Cost of Seafood
- 5240 Cost of dairy
- 5250 Cost of production
- 5260 Bakery Cost
- 5270 Frozen Cost
- 5280 Cost of dry and canned groceries
- 5320 Cost of drinks
- 5330 Liquor Cost
- 5340 Beer Cost
- 5350 Cost of wine
- 5360 Cost of Merchandise
- 5380 Cost of bar and consumables
- 5600 Cost of delivery and direct labor
- 5700 Business Rates
This example separates expense accounts into three main categories: payroll expenses and other expenses. Payroll expenses are grouped in the 6,000 range, with other operating expenses in the 7,000 range. General expenses such as rent, taxes, and depreciation are in the 8,000 range.
While the accounts should be itemized at least far enough to separate the tax lines, combining infrequently used accounts will make the overview much easier to understand. The following list combines several categories that are often separated on other charts.
You should check with your accountant or tax preparer to make sure that everything you combine does, in fact, share the same tax line.
The Inventory Loss/Scrap account has slipped under the 6000 marker, as some may consider it to fall under the Cost of Goods categories.
- 5800 Inventory loss/waste
- 6000 Labor expenses
- 6100 Management salaries
- 6200 staff salaries
- 6300 Contract work
- 6400 commission paid
- 6500 Employee Benefits
- 6600 Workers Compensation Insurance
- 6700 Employer payroll taxes
- 6800 Payroll processing expenses
- 7100 Direct Operating Expenses
- 7110 China – Glassware – Cutlery
- 7120 Restaurant and kitchen supply
- 7130 Cleaning supplies and expenses
- 7140 Decorations and supplies for guests
- 7150 Laundry – Clothes – Uniforms
- 7160 Fees – Permits – Licenses
- 7200 Pests – Security – other contract
- 7250 POS – Technical Support – Online Service
- 7300 Marketing
- 7310 Media and print advertising
- 7320 Promotional events
- 7400 Automotive and travel
- 7500 Music and Entertainment
- 7600 Repairs and Maintenance
- 7700 Utilities
- 7750 Telephone and network connection
- 7800 General and Administrative
- 7810 Bad Debts – Over/Short
- 7820 Bank commissions
- 7830 Insurance
- 7840 Interest
- 7850 Professional fees
- 7890 Miscellaneous office expenses
- 8100 Rental and occupancy costs
- 8200 Equipment rental
- 8600 Sales tax paid on purchases
- 8700 Amortization
- 8900 Other expenses
- 9000 Income Tax
The only items left to account for are the sale of major assets, other income from sources other than restaurant operations (such as investments or sublease of space), and a placeholder account for transactions where the business owner needs the help of your accountant.
- 9500 Gain/Loss on sale of assets
- 9900 Other Income (non-operating
- 9999 Ask my accountant