Not everyone is fluent in restaurant franchise accounting, particularly busy restaurant owners and managers. However, knowing some basics of accounting can help ensure the restaurant remains successful and in the black. Keep reading to learn some basics of restaurant accounting.

The Chart of Accounts

The Chart of Accounts is a term used by accountants to describe the buckets used for categorizing the money flowing in to and out of the business. The chart includes equity, expenses, revenue, liabilities, and assets. Each of these is broken down into various subcategories, including restaurant supplies, marketing, and sales.

The question is, why should owners and managers care? The short answer is that a Chart of Accounts is the source of the business’s financial statements. Without this, gaining insights into anything related to the ability of a restaurant to make money or its spending will be challenging.

The Cost of Goods Sold

Often abbreviated to COGS, this refers to the cost that goes into creating a product being sold. Put simply, it means the cost of all items and ingredients on a menu. The COGS can be calculated the more challenging way: how many of menu item A were sold and what did it cost to make them? Or, it can be calculated while taking the restaurant inventory each week—beginning inventory minus ending inventory.

It’s important to note that COGS don’t include utilities or labor costs. It will only include the ingredients that are included in the dishes on a restaurant’s menu.

Prime Cost

The prime expenses for a restaurant are the COGS plus the labor costs. These constitute most of a restaurant’s expenses because the final figure is inclusive of all beverage and food ingredients along with the cost of payroll, taxes, and benefits. This is where owners have the biggest chance to avoid mistakes, reduce costs, and increase profits.

Understanding the basics of restaurant accounting offers restaurant owners and managers the perfect opportunity to learn something new about their business and keep up with the money side of business. It’s still a good idea to hire an accountant for handling all this. Being informed is the best way to ensure that a restaurant’s accounting is handled properly.