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

Setting up a chart of accounts to suit the needs of the restaurant usually requires customizing the default options of any accounting program. The selection of sales and cost of goods accounts in most systems does not provide the separation of food and beverage categories that is needed.

Even the leading small business accounting program, while it has a default selection for restaurants, doesn’t provide all of the accounts that most restaurant owners require. Also, many of the expense accounts that are added are rarely used, leading to confusion during data entry and not helping with the overview of business finance.

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 of classifying accounts.” He notes that most restaurants won’t use all of the categories listed, and notably lacks a breakdown of inventory and cost categories beyond “food” and “drink.” Many restaurant owners want further separation of those categories to include subcategories 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 form of account numbering system must be used. If your program doesn’t display account numbers, you should have an option on a setup screen to enable 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 range of 1,000 and income accounts in the range of 4,000. In systems with many itemized accounts, 5-digit numbers may be used to allow for more subcategories, but that is rarely needed for a small restaurant.

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

Asset counts: 1000-1999

Liability accounts: 2000-2999

Equity accounts: 3000-3999

Income 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 you own.

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

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

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

Asset accounts can be numbered as such:

  • 1000 cash
  • 1010 Primary Bank Account
  • 1020 bank account #2
  • Business Deposit Account 1060
  • 1080 checks received
  • 1100 accounts receivable
  • 1200 food inventory
  • 1210 Meat inventory
  • 1220 Poultry inventory
  • 1230 Shellfish Inventory
  • 1240 Inventory of dairy products
  • 1250 product inventory
  • 1260 Bakery Inventory
  • 1270 Frozen Inventory
  • 1280 Inventory of dry and canned foods
  • 1320 Beverage inventory
  • 1330 Liquor inventory
  • 1340 beer inventory
  • 1350 Wine inventory
  • 1360 Merchandise inventory
  • 1380 Inventory of bars and consumables
  • 1400 Prepaid expenses and advances
  • 1450 Recycle return value

Assets that have a useful life of several years or more are called long-term assets. This also includes any real estate.

  • 1500 fixed assets
  • 1510 Land and Construction
  • 1520 Automotive
  • 1530 Furniture Accessories and Equipment
  • 1540 Leasehold Improvements
  • 1600 Accumulated Depreciation
  • 1700 Initial expenses capitalized
  • 1800 security deposit

Liability Accounts

Liability accounts include things like credit cards and vendor payments. It also includes money received from taxes owed to the state, tips owed to employees, and gift cards sold but not yet redeemed. Real estate loans and other major financing are subcategorized as long-term liabilities.

Liability accounts can be numbered as:

  • 2000 accounts payable
  • credit card 2110
  • 2120 Credit Card #2
  • 2130 Credit Card #3
  • 2140 Credit Card #4
  • 2210 Sales Tax Payable
  • 2220 Second Tax to Pay
  • 2,250 Payroll Liabilities
  • 2260 Second Payroll Responsibility
  • 2280 Tips withheld
  • 2,300 Gift Cards and Certificates
  • 2350 customer credits
  • 2400 promissory notes
  • 2500 Other debt

Equity Accounts

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

The most basic capital accounts could be numbered:

  • 3000 Owner’s Equity
  • 3100 common shares
  • 3,300 retained earnings

income accounts

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

Typical income accounts are:

  • 4000 Sales revenue
  • 4200 Sale of Food
  • 4320 Sale of beverages
  • 4330 Sale of liquor
  • 4340 Sale of beer
  • 4350 Sale of Wine
  • 4360 Dirty merchandise
  • 4500 Catering and contracts
  • 4,700 Other operating income
  • 4900 Discounts

One difference between the NRA’s recommendations and many other lists involves the location of “other income” accounts. This may include income from sources such as cover charges, gaming or vending machines, and banquet room rentals. Most lists place these accounts in the 8,000 range, above expenses, but the NRA list places them in the 6,000 range.

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

Putting the discounts in the income category implies that it will be a “con” account. Where most sales categories will have a credit balance, discounts will typically have a debit balance.

Cost of goods accounts

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

The numbers used here also provide consistency across accounts, as the last 3 digits in each COGS category are the same as the last 3 digits in the associated inventory account.

A cost of goods list might include:

  • 5000 cost of sales
  • 5200 Cost of food
  • 5210 Cost of meat
  • 5220 Cost of poultry
  • 5230 Seafood Cost
  • 5240 Cost of Dairy
  • 5250 Cost of production
  • 5260 Bakery Cost
  • 5270 Frozen Cost
  • 5280 Cost of dry and canned groceries
  • 5320 Cost of drinks
  • 5330 Cost of liquor
  • 5340 cost of beer
  • 5350 Cost of wine
  • 5360 Cost of Merchandise
  • 5380 Cost of bar and consumables
  • 5600 Cost of delivery and direct labor
  • 5700 Trade Rates

expense accounts

This example separates the expense accounts into three main categories: payroll expenses and other expenses. Payroll expenses are in the 6,000 range, with other operating expenses in the 7,000 range. Overhead expenses like rent, taxes, and depreciation are in the 8,000 range.

While the accounts should be broken down at least enough to separate the tax lines, the combination of infrequently used accounts will make the overview much easier to understand. The following list combines several categories that are often separated into other charts.

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

The Inventory Loss/Waste account has slipped under the 6000 marker as some may consider it to fall under the Cost of Goods categories.

  • 5800 Inventory Loss/Waste
  • 6000 Labor expenses
  • 6100 Management Salaries
  • 6,200 staff salaries
  • 6300 Work for hire
  • 6400 Commission paid
  • 6500 Employee Benefits
  • 6600 Workers’ Compensation Insurance
  • 6700 Employer Payroll Taxes
  • 6800 Payroll Processing Fees
  • 7100 Direct Operating Expenses
  • 7110 China – Glassware – Cutlery
  • 7120 Restaurant and kitchen supply
  • 7130 Cleaning items and expenses
  • 7140 Guest Decorations and Supplies
  • 7150 Laundry – Clothing – Uniforms
  • 7160 Fees – Permits – Licenses
  • 7200 Pests – Security – other contract
  • 7250 POS – Technical Support – Online Service
  • 7300 Marketing
  • 7310 Print media and advertising
  • 7320 Promotional events
  • 7400 Automotive and travel
  • 7500 Music and Entertainment
  • 7600 Repairs and Maintenance
  • 7700 Utilities
  • 7750 Telephone and network connection
  • 7800 General and Administrative
  • 7810 Bad Debts – Excess/Short
  • 7820 Bank commissions
  • 7830 Safe
  • 7840 Interest
  • 7850 Professional Fees
  • 7890 Miscellaneous office expenses
  • 8100 Rental and occupancy costs
  • 8200 Equipment rental
  • 8600 Sales tax paid on purchases
  • 8700 Amortization
  • 8900 Other expenses
  • 9000 Income Tax

other accounts

The only items remaining to be accounted for are the sale of major assets, income from sources other than restaurant operations (such as investments or subleasing space), and a placeholder account for transactions where the business owner needs the help of your accountant.

  • 9500 Gain/Loss on sale of assets
  • 9900 Other Income (not from operation
  • 9999 Ask my accountant