Chart of Accounts for a Small Restaurant

Independent restaurant owners often do their own bookkeeping. Even if they hire a professional accountant at year’s end, they may save considerable money by handling the weekly tasks themselves.

Setting up a chart of accounts to fit the restaurant needs generally requires customizing the default choices of any accounting program. The selection of sales and cost of goods accounts on most systems does not provide for the separation of food and beverage categories that are needed.

Even the leading bookkeeping program for small business, while it has a default selection for restaurants, fails to provide all of the accounts that most restaurant owners require. In addition, many of the expense accounts that are added are rarely used, leading to confusion during data entry, and don’t help with the overview of the business finances.

The National Restaurant Association publishes a book titled Uniform System of Accounts for Restaurants. The book provides detailed descriptions of the application of generally accepted accounting principles to the restaurant industry.

That book includes a sample chart of accounts, but notes that “the codes used here are not the only method for classifying the accounts”. It points out that most restaurants will not use all of the categories listed, and it also notably lacks breakdown of inventory and cost categories beyond “food” and “beverage”. Many restaurant owners want further separation of those categories to include sub-categories such as “meat”, “seafood”, and “produce”, and possibly “beer” and “wine” for beverage categories.

While many programs do not require the use of account numbers, the NRA book states that some type of account numbering system must be used. If your program is not showing account numbers, it should have an option on a set up screen to activate that feature.

Any account numbering system is generally grouped so that accounts of a particular type fall within a specific range of numbers. For example, assets may be in the 1000 range, and income accounts in the 4000 range. On systems with many detail accounts, 5 digit numbers may be used to allow more sub-categories, but that is rarely needed for a small restaurant.

Typical number ranges that are used by many accounting systems are as follows:

Asset accounts: 1000-1999
Liability accounts: 2000-2999
Equity accounts: 3000-3999
Revenue accounts: 4000-4999
Cost of goods: 5000-5999
Expenses: 6000-8000
“Other” accounts: 8000-9999

Asset Accounts

Asset accounts include cash, bank accounts, inventory, and everything else that is owned.

It is common to assign the first account number, 1000, to Cash, since they are usually ordered, within each group, by liquidity (ease of converting to cash).

A separate account should be used in the chart of accounts for each bank account maintained for the business. If merchant deposits take a few days to reach the bank, a merchant account can be used. Also, if checks are accepted and not processed electronically, an account should be created for checks to be deposited.

New accounts are normally numbered 10 digits apart, so your first two bank accounts may use 1010 and 1020 as account numbers in the chart of accounts. Leaving gaps between the numbers makes it easy to add another account later and squeeze it in to the sort order in any position.

The asset accounts can be numbered as such:

1000 Cash
1010 Primary Bank Account
1020 Bank Account #2
1060 Merchant Deposit Account
1080 Checks Received
1100 Accounts Receivable
1200 Food Inventory
1210 Meat Inventory
1220 Poultry Inventory
1230 Seafood Inventory
1240 Dairy Inventory
1250 Produce Inventory
1260 Bakery Inventory
1270 Frozen Inventory
1280 Grocery Dry & Canned Inventory
1320 Beverage Inventory
1330 Liquor Inventory
1340 Beer Inventory
1350 Wine Inventory
1360 Merchandise Inventory
1380 Bar & Consumable Inventory
1400 Prepaid Expenses & Advances
1450 Recycle return value

Assets that have a lifespan of several years or more are referred to as Long Term Assets. This also includes any real estate.

1500 Fixed assets
1510 Land & Building
1520 Automobile
1530 Furniture Fixtures & Equipment
1540 Leasehold Improvements
1600 Accumulated Depreciation
1700 Capitalized Start Up Expenses
1800 Security Deposits

Liability Accounts

Liability accounts includes things like credit cards and payables to vendors. It also includes money that has been received for things like tax that is due to the state, tips due to the employees, and gift cards sold but not yet redeemed. Real estate loans and other major financing is sub-categorized as long-term liabilities.

Liability accounts can be numbered as:

2000 Accounts Payable
2110 Credit Card
2120 Credit Card #2
2130 Credit Card #3
2140 Credit Card #4
2210 Sales Tax Payable
2220 Second Tax Payable
2250 Payroll Liabilities
2260 Second Payroll Liability
2280 Tips held
2300 Gift cards & certificates
2350 Customer Credits
2400 Notes Payable
2500 Other debt

Equity Accounts

The owners’ investment in the company is represented in the equity accounts. For a corporation, this includes the shareholders equity. It is effectively the money that the business owes back to the owners. When an accounting period is closed, the balance of the income and expense categories is transferred to Retained Earnings, which is also an equity account.

The most basic equity accounts could be numbered:

3000 Owner Capital
3100 Common Stock
3300 Retained Earnings

Income Accounts

Sales fall into the general category of income accounts. A restaurant will obviously want separate categories for food and beverage sales, and may want further separation of beer, wine, and liquor sales.

Typical income accounts are:

4000 Sales Revenue
4200 Food Sales
4320 Beverage Sales
4330 Liquor Sales
4340 Beer Sales
4350 Wine Sales
4360 Merchandise Sales
4500 Catering & contracts
4700 Other Operating Income
4900 Discounts

One difference between the NRA recommendations and many other lists involves the placement of the “other income” accounts. This can include income from sources such as cover charges, games or vending machines, and banquet room rental. Most lists place these accounts in the 8000 range, above expenses, but the NRA list places them in the 6000 range.

Most smaller locations will only need a single category for other income. Since “cost of goods” is a general sub-category of expenses, it makes sense to avoid placing an income category in the middle of the range from COGS through expenses. A single account has been placed in this list within the 4000 range.

Putting the discounts into the revenue category implies that this will be a “contra” account. Where most of the sales categories will have a credit balance, discounts will normally have a debit balance.

Cost of Goods Accounts

The Cost of Goods accounts, also called Cost of Sales or Cost of Goods Sold, represent the food and beverage purchases to provide the meals. Other expenses directly related to sales may be included, such as merchant fees or consumable cups and napkins.

The numbers used here also provide consistency across all accounts, as the last 3 digits of each COGS category is the same as the last 3 digits on the associated inventory account.

A cost of goods list could include:

5000 Cost of Sales
5200 Food Cost
5210 Meat Cost
5220 Poultry Cost
5230 Seafood Cost
5240 Dairy Cost
5250 Produce Cost
5260 Bakery Cost
5270 Frozen Cost
5280 Grocery Dry & Canned Cost
5320 Beverage Cost
5330 Liquor Cost
5340 Beer Cost
5350 Wine Cost
5360 Merchandise Cost
5380 Bar & Consumable Cost
5600 Delivery & direct labor Cost
5700 Merchant Fees

Expense Accounts

This example separates the expense accounts into three primary categories: payroll expenses and other expenses. The payroll expenses are grouped in the 6000 range, with the other operating expenses in the 7000 range. Overhead like rent, taxes, and amortization are bumped into the 8000 range.

While accounts must be broken down at least far enough to separate tax lines, combining rarely used accounts will make the overview much easier to understand. The following list combines several categories that are often separated on other charts.

You should check with your accountant or tax preparer to ensure that anything you combine does, in fact, share the same tax line.

The Inventory Loss/Waste account has been slid in under the 6000 marker, as some may consider it to belong with the Cost of Goods categories.

5800 Inventory Loss/Waste
6000 Labor related expenses
6100 Management Wages
6200 Staff Wages
6300 Contract Labor
6400 Commissions paid
6500 Employee Benefits
6600 Workers Comp Insurance
6700 Employers Payroll Taxes
6800 Payroll processing expense
7100 Direct Operating Expenses
7110 China – Glassware – Flatware
7120 Restaurant & Kitchen Supply
7130 Cleaning Supply & Expense
7140 Decorations & Guest Supply
7150 Laundry – Linen – Uniforms
7160 Fees – Permits – Licenses
7200 Pest – Security – other contract
7250 POS – Tech support – Online serv
7300 Marketing
7310 Media & Print advertising
7320 Promotional events
7400 Automobile & travel
7500 Music and Entertainment
7600 Repairs and Maintenance
7700 Utilities
7750 Telephone & net connection
7800 General and Administrative
7810 Bad Debts – Over/short
7820 Bank fees
7830 Insurance
7840 Interest
7850 Professional fees
7890 Misc. Office expense
8100 Rent and Occupancy costs
8200 Equipment Rental
8600 Sales tax paid on purchases
8700 Amortization
8900 Other expense
9000 Income Tax

Other Accounts

The only remaining items to account for are the sale of major assets, other income from sources besides restaurant operations (such as investments or sub-letting space), and a placeholder account for transactions where the business owner needs their accountant’s assistance.

9500 Gain/Loss on sale of assets
9900 Other Income (not from operation
9999 Ask My Accountant