Kontabilitetit. Uhasibu. Redovisning. Comptabilite. Apskaita.

As hard as these words are to understand, the concept they all translate to can be even harder to grasp…

We’re talking about accounting.

Not everyone speaks fluent accounting… especially not busy restaurant managers.

But knowing the basics of restaurant accounting can pay dividends in helping you understand your accountant better and manage your money.

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Whether you hire outside help for your bookkeeping or do it all yourself, these 5 restaurant accounting concepts break down the basics… in plain English.

#1 Chart Of Accounts

Chart of Accounts is the term your accountant uses to describe the buckets used to categorize the money that flows in and out of your business.

The Chart of Accounts includes assets, liabilities, revenue, expenses, and equity.

Then all of these are broken down into subcategories… things like marketing, restaurant supplies, and sales are all items you would typically find in a restaurant Chart of Accounts.

Why you should care…

The Chart of Accounts is the source of a business’s financial statements.

Without it, getting insights into anything related to your restaurant’s moneymaking & spending will be a headache… and getting your taxes done will be especially difficult.

#2 Cost Of Goods Sold

Cost of Goods Sold (COGS) refers to the total cost that goes into making the product someone is selling.

It basically means the cost of all of the ingredients & items on your menu.

You can calculate COGS the hard way… how many you sold of a menu item X how much it cost to make it.

OR you can calculate your COGS when you take your weekly restaurant inventory… Beginning Inventory – Ending Inventory = COGS.

Note, your COGS should not include labor costs or utilities…

It only includes the cost of the actual ingredients that make up the dishes on your menu.

Why you should care…

Your COGS is the cost of your food and beverage inventory, which directly ties to the profit you make per plate sold.

Keeping tabs on this number will help you keep pricing where it needs to be.

And that will let you make a healthy profit on each plate of food sold at your restaurant.

#3 Restaurant Labor Cost, Occupancy Expenses And Operating Expenses

Restaurant labor cost, occupancy expenses, and operating expenses are all different categories of restaurant expenses and they’re slightly different from those of other kinds of small businesses.

Restaurant labor cost is pretty straightforward.

It’s where you account for the labor it takes to run your restaurant (remember, not in Cost of Goods Sold).

This means your cooks, busboys, servers, hosts, and anyone who’s on your payroll – from front-of-house to back-of-house.

And payroll taxes and employee benefits are included in labor costs.

Occupancy expenses are all of the costs related to… well, where you’re at.

What’s included: Rent, property taxes, utilities, and even property insurance.

Occupancy expenses are fixed costs… meaning you can’t reduce the cost of them in order to increase profits.

Operating expenses are pretty much everything else it takes to run your restaurant on a day-to-day basis.

Operating expenses are not the cost of the people on your payroll OR the cost of the ingredients or rent.

It’s just everything else from napkins and flatware, to marketing and advertising.

Why you should care…

Restaurants are the only type of small business that has occupancy expenses as a category on their income statements.

That means knowing the difference between occupancy expenses and operating expenses…

Well, let’s just say it’s mucho importante for restaurant owners.

And since labor costs are one of the largest expenses for a restaurant, it’s important to know what it is so you can invest money wisely and increase profits.

#4 Prime Cost

Simply put, a restaurant’s prime cost is COGS + labor costs.

The prime cost constitutes a majority of a restaurant’s expenses because it includes all of the food and beverage ingredients, as well as all payroll costs, taxes, and benefits.

Why you should care…

Prime cost is an important accounting term to know as a restaurant owner.

It’s where you have the biggest chance to avoid accounting mistakes, cut costs, and increase profits.

The other fixed costs (occupancy expenses and operational expenses) aren’t as easy to cut back on, and they usually make up a smaller portion of your overall expenses anyway.

Want to find out the number 5? CLICK HERE