This is a complete breakdown of how a restaurant chart of accounts should be structured. Think of this as your playbook for accounting success, your framework to run a successful restaurant business.
We all have heard these different accounting terms related to our income statement and balance sheet. Our restaurant bookkeepers and accountants have mentioned tracking sales, owner’s equity, bank accounts, and more. Isn’t it time we made sense of all these confusing chart of accounts terms?
This list doesn’t include all the supplement detail on revenue, expenses, assets, liabilities, etc. I cover all that in detail in this post.
Instead, the categories listed on this page provide the broad strokes, actual restaurant examples, and relatable content.
The goal here is simple, take the complex world of accounting and make it relatable for your restaurant, cafe, and bar owner.
Here is the detailed breakdown for your restaurant chart of accounts:
Table of Contents
Restaurant Assets: 1000 – 1999
Assets are items that your company owns.
For example, you could own the money in your bank account or own the computer you are reading this blog post on. Assets are usually divided into two categories—current assets and fixed assets—and QuickBooks helps you with this division.
Current assets are items that can quickly be turned into cash, such as the money in your bank account. (Of course, even though you can put your car on Craigslist and quickly sell the clunker, it is not considered a current asset.) Some other items that may be current assets are savings accounts, money market accounts, accounts receivable, and inventory. Yes, that’s right; your food and beverage inventory is a current asset.
Fixed assets are items you would usually have to sell to generate cash. The minimum amount for fixed assets is often $500. Some examples of these items are that clunker mentioned above, machinery, equipment, computer, cars, and so on. When building out a restaurant, the kitchen and related appliances are often classified as fixed assets.
Restaurant Liabilities: 2000 – 2999
Liabilities are the money your company owes other people.
Did you borrow $1,000 from your buddy to cover payroll on the week that sales were slow? Well, that would be a liability for your entity. Do you collect sales tax that you need to remit to the government? That’s a liability because you owe that money—it’s not yours. Tip money collected for employees to be redistributed back to them on their checks is considered a liability, as well. Do you make major purchases with your company credit card, those are liabilities, too.
Restaurant Equity: 3000 – 3999
Equity accounts depend on how your entity is structured, and they vary depending on if your entity is a sole proprietorship (single-member LLC), partnership (multiple-member LLC), or corporation.
In QuickBooks, if your entity is a sole proprietorship, you need a capital account and an owner’s draw account, which are both equity accounts and are therefore categorized under the equity portion of the balance sheet and chart of accounts. The capital account is to keep track of just that, the total capital (or amount of money) you have invested since starting the business, plus or minus the net profit or loss each year since you started the business. Use the owner’s draw account for money you take out of the business for personal use, such as paying your car note or for an Xbox for little Jimmy, for cash withdrawals, your distributions, and any money that gets deposited into your personal accounts.
Uncle Todd’s Capital and Uncle Todd’s Draw. Similarly, Joe would need Wife’s Dad Joe Capital and Wife’s Dad Joe Draw. As an aside, the money contributed to open the business goes into the capital account, and the money distributed goes into the draw account.
If your company is an S or C corporation or an LLC corporation (different from an LLC partnership), the chart of accounts should have a common stock account and sometimes a preferred stock account. Common stock and preferred stock represent the total sum of stock the company has issued. An LLC might have member stock if there is more than one person who owns stock. This is on a bit more complex level, however, so you should refer to your CPA to ensure you set up these accounts correctly based on your entity type and member structure.
Restaurant Income or Revenue: 4000 – 4999
Income or revenue is the income your business gets from day-to-day business operations. These include but are not limited to food sales, beverage sales, catering sales, and service fees you collect.
Structuring these accounts in the chart of accounts in QuickBooks is really up to you. Perhaps you run two different departments for your business, such as the front-of-the-house and the back-of-the-house, in this case, you may want to separate them into subaccounts of income as is done for the food and beverage department outlined below. Or maybe you have multiple revenue centers such as a large to-go business and a full-service sit-down restaurant; in this case, separating the two will help you better manage your operation. If you want to see the performance of each department’s subcategories, then you may wish to use sub-subaccounts. Either way, it’s best to remember that less is more.
Remember, the goal is to fit your income statement on one page, which means fewer accounts from the chart of accounts. Then, you will be able to track the health and performance of your business in a simple one-take.
Refunds and exchanges also live in the Income and revenue category. This ensures that your next profit is truly your next profit. Your top-line revenue number should be the money you received for the period, not the money received before refunds and item comps.
Restaurant Cost of Goods Sold (AKA COGS): 5000 – 5999
In QuickBooks, the cost of goods sold includes the cost of raw materials, freight charges for getting raw material to a warehouse, labor for building the finished goods, and freight charges for getting the products to the customer.
For a restaurant business, the primary inputs are the food and beverage inputs purchased to produce the dishes and drinks on the menu. Some operators prefer to see one lump sum of purchases, while others choose to break out purchases into their main inputs of meat, dairy, baked goods, and dry goods. I recommend the latter as it lets you better manage the purchasing process. When setting up the COGS category in the chart of accounts, be creative: Feel free to add additional expense accounts, consolidate accounts, create subaccounts, and more.
Basically, figure out what will make your business function better, set guidelines, and follow them.
Expenses: 6000 – 7999
Expenses are the fixed costs that exist even if you sell no products or services. Examples include rent, telephone, insurance, vehicle expense, advertising, and utilities.
Other Income: 8000 – 8999
Other income in QuickBooks is income you earn outside the usual way you do business, including interest income, gain on the sale of an asset, insurance settlement, a stock sale, or rents from buildings you own when real estate is not your main business focus.
As a restaurant owner, it is likely that you will not use this income type very often.
Other Expenses: 9000 – 9999
The other expenses category refers to an expense that is outside of your regular business, such as a loss on the sale of an asset, or stockbroker fees (though it is not limited to these items and also often includes depreciation, amortization, R&D expenses, finance cost, and income tax expense).
Not sure how to classify something? Check with your CPA—a great CPA knows that the more questions they answer throughout the year, the easier tax time will be on them.
Give Yourself a High Five
Wow that was intense; the restaurant chart of account structuring is boring and complicated for the newbie. But you know what, you are here, which means you care. Whether you’re a total beginner or an accounting pro, you’re trying to improve your knowledge base.