There is a practice within the discipline of accounting that involves creating a chart of accounts. Also known as a COA, a chart of accounts is simply a list of the different cash accounts a business utilizes to operate. Included in the chart is each individual account along with its balance.
The COA can be rather complicated in the restaurant business. Why? According to the Dallas-based Gurian CPA accounting firm, it’s due to the fact that restaurant accounting itself is so complex. The more a restaurant’s accountant has to deal with, the greater the requirement to keep funds intended for different purposes separate.
Your typical restaurant lists five primary accounts on its COA. These are:
1. Food Expenses
The cost of procuring food and beverages is second only to labor when it comes to running a restaurant. It stands to reason that a restaurant would keep a separate account in order to keep track of the cost of procuring the food it sells to customers. This includes the cost of raw ingredients, finished food products, and beverages.
There are a couple of ways to account for food expenses as compared to food being an asset. Most smaller restaurants simply total up the entire cost of procuring food products and count it as a single item. They do not worry about spoilage and waste. This is the easiest and most streamlined way to account for food expenses.
The second method is to account for procurement and loss as separate entities. However, this requires paying a lot of attention to spoilage and waste. It requires calculating how much food is simply discarded as opposed to being sold. It offers a more accurate picture of food expenses, but it is also time-consuming.
2. Food Revenues
Food revenues are all of the revenues generated by selling food products. This includes in-house restaurant sales featuring both food and beverages. It also includes any outside sales. A restaurant might cater a corporate event or sell at a local festival. Those sales still count toward food revenues.
3. Occupancy Expenses
Accounting for all of the restaurant’s occupancy overhead is handled with the occupancy expenses account. This account is used to handle rent or mortgage payments, property insurance, taxes, utilities, disposal services, janitorial services, and so on.
Routine maintenance and repairs are also included here. Anything not considered routine could be considered an occupancy expense, but it could also be considered a capital improvement. It really just depends on the project.
4. Labor Expenses
Among the five primary accounts, labor is perhaps the most confusing. It accounts for all the expenses of providing labor. This includes both management and general labor. It covers wages and salaries, employee benefits, tips, etc.
The two most complicated aspects of labor expenses are tip income and overtime. Both are covered under state and federal laws that are designed specifically to address the unique aspects of restaurant payroll.
5. Operating Expenses
The final account covers operating expenses. This account is even more detailed than labor expenses. Fortunately, it doesn’t tend to be as confusing inasmuch as the vast majority of the items included here are black-and-white.
Operating expenses include all of the costs of running the restaurant apart from labor, occupancy, acquiring food and beverage products. We are talking licenses and permits, taxes, liability insurance, equipment, legal fees, marketing expenses, back office supplies, and on and on.
Seeing this chart of accounts, it is no wonder restaurants prefer to use CPAs. Trying to make heads or tails of it all keeps the restaurant owner from taking care of customers.