One may think accounting is the same in the restaurant business as in other industries, but that’s not necessarily the case. Restaurant accounting may use similar costing, documentation, or statement methods but has its own set of challenges and practices. The core accounting fundamentals are the same, per the standard principles, the taxation rules, the filing process, and documentation. Yet, the restaurant business doesn’t work like any other enterprise. It involves involuntary tips, accounting periods, food necessities, and other resources, which typically need a more nuanced approach and knowledge base for accounting. One should know how accounting differs from restaurant accounting to understand the varied solutions that can be implemented to improve and streamline financial management.

If you have started a restaurant business and are in a difficult situation with your finances, contact a skilled accountant or outsource a  CPA in Oakland, CA to help you.

How is restaurant accounting different? 

As a business owner, you must be familiar with certain guidelines and tactics used in restaurant accounting that differ from regular bookkeeping or accounting methods.

1. Right accounting methods for the restaurant business: Like in any other business industry, a restaurant can use any accounting method—accrual accounting, cash accounting, and chart of accounting method—for keeping tabs on their financial numbers and managing taxes. However, people who own a restaurant and make more than $1 million a year must use the accrual method of accounting. Restaurant owners who generate less than $1 million a year can choose any of the accounting methods. Moreover, it also depends upon your staff, employees, usual transactions, and other relevant aspects. A skilled accountant will help you identify which of the methods can best fit your restaurant business.
2. Consideration of tips in your restaurant accounting: In the restaurant business, you also have to consider tips other than tax regulations for your employees. Tips are not gratuities, which operate differently; they are the employee’s income and must not be accounted for as restaurant income and are not subject to withholding. However, the restaurants are supposed to take care of tips too, meaning your employees should report to you about any substantial tips, and you are required to pay taxes on them. Remember, tips are not part of your business revenue.
3. Varied accounting periods: Specific days are more important for some businesses. For instance, a celebration or weekend day will bring in more customers than a regular quiet Tuesday. This is the reason most companies often use a 4-week accounting period rather than a monthly period. An accounting period simply refers to the duration used by a company for financial reporting. A four-week accounting period implies 4 weeks at a time, each week beginning on Monday and ending on Sunday. This is completely different from a monthly period, in which the number of Fridays and Saturdays can differ. This slight change in the accounting period doesn’t matter in any other corporation or industry but is a necessity when it comes to restaurants.
4. Involvement of unique expenses in the budget: Any business, say a restaurant organization, has fixed and varied expenses. Fixed expenses include rent, insurance, utilities, loans, and payroll. Varied expenses are comprised of food costs, employee hourly wages, and additional purchases. Varied expenditures are quite challenging to budget and can transform frequently. But when budgeting comes into play, these two factors, plus unique expenses, must be taken into account. Inventory management, the cost of goods sold, and prime costs are a few examples. 
5. Crucial accounting ratios: There are multiple accounting ratios, such as revenue per seat and the ratio of food and beverage to expenses, that are applicable and essential for the restaurant industry. These denominating numbers can dictate your cost-to-profit ratio, which can then be used to benefit upselling and business growth.