In this article, I will walk you through each of the sales-related accounts that show up on your Point of sale report, what they are, and how to treat them.
I recommend getting acquainted with my Chart of Accounts configuration in my post: A Restaurant Chart of Accounts that any Restaurant Bookkeeper or Accountant Can Use, as this is the framework we use quite a bit throughout this website.
Read Also: Restaurant Tax Guide
Table of Contents
Sales or Income
Lunch Sales, Dinner Sales, N/A Beverage Sales, Liquor Sales, Beer Sales, Wine Sales, and more sales are income to your restaurant. In my sales journal entry methodology, these items are treated as credits. You increase the sales on the income statement with these transactions. For example, if you sold $500 in lunch sales yesterday when you enter it into the chart of accounts, you are crediting the journal entry $500.
Sales are the lifeblood of a restaurant, without food or beverage sales, you have no revenue to cover all your prime and fixed costs.
Food Comps and Beverage Comps
I have a unique approach to comps; I believe they are invaluable from a strategic analysis of your restaurant. Lots of restaurant accountants overlook these and cost their clients thousands.
These items are treated as debits and will, therefore, decreases total sales. Say you have a dinner entrée item priced at $19.99, and your customer was unhappy with the side, so you comped their dinner 50 percent, or $9.99. This transaction will reduce the dollars received, and net sales will end up being $10 instead of the sale price of $19.99. Your journal entry helps to track this.
Sales Tax Payable
We all love the government and paying taxes, don’t we? Regardless of my sarcasm, sales tax is not a game. You have collected it, and it is due, my friend. You will, therefore, be crediting this account. You have received the money on behalf of the government, to be paid to them at a later date. This sales tax money is money owed, which is classified as a liability on the balance sheet. By crediting this within the journal entry, the sales tax payable account on the balance sheet will increase.
All the time, I see sales tax counted as revenue then expenses when it is paid. This configuration is entirely wrong; it is simply not an income statement item. Sales tax is a current liability, an ‘I owe you,’ to be repaid at a later date. Understand this, its effects on cash flow, and I promise you will run a better restaurant business.
Gift cards are a tricky one! These could be entered as either a debit or a credit. It is a credit if you have sold a gift card and have redeemed none. For example, if you sell a $100 gift card, you have increased your gift card liability by $100. On the other hand, if a gift card was redeemed, you reduced this liability— meaning, if a $75 gift card was used by a customer to pay for the dinner, this will be entered as a debit and reduces your gift card liability by the same amount.
It can be a bit confusing for sure. Just remember that when you sell a gift card, you owe someone that money. When a gift card is used, you no longer owe that money. A credit increases that liability account, and a debit reduces it. Gift cards are a powerful way to help you through a challenging period, as we say with the COVID-19 challenges of 2020. The ability to sell gift cards allowed lots of restaurants to keep their doors open for the time being.
As you know, tips are a driving force in the hospitality business. They help team members pay their bills, and they let team members know if they did (or did not do) a good job. They are currently a vital part of the restaurant world, and accounting for them is essential.
Tips are similar to gift cards as they act as a liability on the balance sheet. When you receive tips that you owe the staff, you increase this liability, which is likely to be paid out on your employees’ next paycheck. Unlike gift cards, however, tips are always a credit in the sales journal entry.
Tips are nuanced, as some restaurants pay out cash tips every night, while others pay out all tips (which I do not recommend). Other restaurants keep all the money to be repaid later. This nuance is where accounting for tips can be challenging, and I recommend you configure the tips payable component of sales tracking to match your business.
Cash on Hand
When you sell food or beverages and receive cash, you increase your cash on hand. It is in a bank bag, on the way to the bank, or maybe sitting in the safe. Wherever it may be, cash on hand is a current asset that has been increased at the end of the day.
This current asset will be recorded as a debit and will, therefore, increase the amount of the asset on the balance sheet. Cash on hand poses a considerable challenge for many restaurant owners; it tends to be ripe with misstatements and theft. In this article, it is enough to think of cash on hand as a debit that can help us track money received for sales.
Credit Card Receivable
You sell food, and the customer pays with a credit card—now, the credit card processor owes you money. This money is a current asset that you hope to collect. For this account, you will debit, just as you do for cash on hand. Doing so increases this account on the balance sheet.
Credit card receivable is a bit confusing for those new to the restaurant accounting world. The credit card cleared, isn’t it my money now? Yes, it is, but it is not in your bank account, so we treat it as a current asset, to be received in the form of cash in the future. Tracking in a credit card receivable account also helps us ensure we are getting the dollar amounts we expect from our processor.
Wrapping up the Point of Sale (POS) Components
Some of these concepts may be new or a bit foreign to the newer restaurant accounting crowd. I recommend reading this article in conjunction with Record Daily Restaurant Sales Using Journal Entries. These should be read while having your POS Z report sitting in front of you. Have questions? Leave a comment below or send me an email!