A Quick-Start Guide to Restaurant Financial Statements
by Jacob Statler
Templates, in any form, improve accuracy, remove the guesswork, and make compiling work more efficient.
They save time and shrink the room for error by following the steps of those that have done a portion of the work for you.
Why reinvent the wheel or put in the 10,000 hours it takes to become an expert in an area unnecessarily?
You opened your restaurant to fuel your passion for cuisine, not log hundreds of late-night hours learning the ins and outs of all things accounting.
Accounting documents and templates for income statements, balance sheets, cash flow, and aging reports have a standard form to be used within restaurant accounting, financial statement preparation, and in recording business transactions.
Follow the standards and you’re golden.
In this guide, we’ll go over the most essential financial statements for restaurants.
- How often financial reports should be completed
- About restaurant chart of accounts
- About restaurant income statements
- About restaurant balance sheets
- About restaurant cash flow statements
- About restaurant aging reports
- How to improve your restaurant financial documents with automation
Plate IQ is the AP solution that syncs with restaurants’ financial statements and tech stacks.
Find out how we helped Cava tame their paper workflow with AP automation.
What are restaurant financial statements?
Restaurant financial statements are formal documents that summarize the business activities of a restaurant. They give owners, investors, and advisors an outlook of a restaurant’s financial position.
There are 3 main financial statements that should be reported periodically:
- Profit & loss statement (also known as an income statement)
- Balance sheet
- Cash flow statement
It’s crucial for a restaurant’s decision-makers to have access to financial information that’s accurate, reliable, and relevant.
How often should restaurant financial reports be completed?
Restaurant financial statements should be prepared on a schedule created by management.
Many restaurants prepare them quarterly, semi-annually, or annually.
By law, public companies must file quarterly reports as well as annually. Private companies have more leeway.
However, it’s recommended that these reports are prepared monthly to dish out a more accurate understanding of your organization’s financial health.
Restaurant profit & loss statement (P&L) (or income statement)
What is a P&L?
A profit and loss statement (P&L) is often referred to as an “income statement.” Both statements include the same financial data.
The income statement, or P&L, shows revenue, expenses and summarizes a restaurant’s finances over a stated period of time.
This financial statement reveals whether the restaurant operated at a profit or loss for the period of time covered by the statement. This time period may be one month or longer — but doesn’t exceed one year.
These statements should be prepared throughout a 12-month fiscal year, sometimes beginning on January 1st but often on a different schedule that makes sense for the business. Any 12-month period that a business uses for their accounting purposes is considered their fiscal year.
The P&L or income statement is an important tool for measuring the restaurant management’s efficiency, effectiveness, and performance.
How to set up a P&L or income statement
Set up the major categories on the income statement in the following order:
- Cost of Sales
- Gross Profit
- Operating Expenses
- Fixed Charges
- Net Income (or loss)
Plate IQ can help you manage multiple P&L statements separately and cleanly — which can lead to you making better cash flow projections.
Restaurant balance sheet
What is a restaurant balance sheet?
A restaurant balance sheet shows assets, liabilities, and equity to reveal a restaurant’s financial position on a given date.
The phrase “on a given date” refers to the document’s publish date. This has a different meaning than the phrase “for a stated period of time,” which describes a time period covered by an income statement.
For example, a balance sheet dated December 31, would show a restaurant’s financial status as of the close of business on that particular New Year’s Eve.
How to set up a balance sheet
To set up a balance sheet, start with your chart of accounts that we previously discussed.
The balance sheet is composed of 3 major categories:
- Assets — What your restaurant owns, such as cooking equipment or inventory.
- Liabilities — What your restaurant owes for certain periods of time, like outstanding bills, lines of credit, loans, rent for property or equipment.
- Equity — The life-to-date earnings or loss.
Equity can be thought of as net assets (the difference between assets and liabilities).
A portion of retained earnings is the restaurant’s net income from operations and other business activities held onto by the company as additional equity capital.
Retained earnings are thus a part of the restaurant’s equity. They represent the total equity reinvested back into the restaurant.
Restaurant cash flow statement
What is a restaurant cash flow statement?
The restaurant cash flow statement provides data on cash receipts and payments of the operating, investing, and financial activities of a restaurant for a stated period of time.
Every restaurant must be able to predict cash flow to ensure it has sufficient funds on hand to finance its current operations and growth.
The time period covered in the cash flow statement needs to be accompanied by the income statement, operations, and balance sheet to fully grasp the restaurant’s financial position.
The cash flow is a net result of cash receipts and cash payments.
If cash receipts are greater than cash payments, the result is a positive cash flow, also called Cash Inflow. A negative cash flow, also called a Cash Outflow, is the result of cash payments being greater than cash receipts.
How to set up a cash flow statement
A cash flow statement is composed of 3 major activity categories:
- Operating Activities — This is revenue-generating activity data retrieved from the income statement.
- Investing Activities — Cash transactions that affect the following assets: marketable securities, investments, property & facilities, and equipment. They’re recorded in each category balance and any purchase in one of these categories decreases the cash flow.
- Financing Activities — Debt and equity transactions pulled from the balance sheet. For example, borrowing funds is cash inflow, and paying dividends to restaurant owners is cash outflow.
To calculate your cash flow, start with your Net Income. Next, add up your Cash Inflows from Sales minus the Operation Outflows. Finally, compare your Ending Cash with your Beginning Cash.
The change is your Net Cash for the reporting period.
Restaurant aging report
What is a restaurant aging report?
It’s not technically a financial document, in that it’s not something being reported to authorities and investors. But it is essential to keeping a smooth set of books.
An aging report is the sum of accounts receivable a restaurant will collect in the future or the sum of accounts payable the restaurant will pay out in the future.
Both are based on credit approvals.
An aging report shows the duration of uncollected and unpaid invoices. Usually, the report sorts invoices into 30, 60, 90, or 120 days outstanding.
Accounts Receivable Aging appears on the balance sheet account as an Asset because this will be future restaurant income while the accounts payable aging appears as a Liability because these invoices represent future expenses.
It’s crucial for the director of finance or accounting to manage the AR and AP aging reports and credit approvals based on cash flow statements.
How to set up a restaurant aging report
Aging reports are set up in columns beginning with vendor/client name/customer listed alphabetically, followed by Total Amount Due, and Number of Days Outstanding.
Plate IQ helps restaurants automatically generate aging reports that are full of real-time, trackable invoice insights.
Restaurant chart of accounts
What is a chart of accounts for restaurants?
Your chart of accounts is also not a financial statement, but it, too, is essential to organized restaurant finances.
A chart of accounts is a list of the names of all accounts used by a particular business.
A chart of accounts doesn’t show account balances. Its main purpose is to serve as a “List of Ingredients” for bookkeepers to use as a guide when entering business transaction results into accounting records.
Main account classifications that appear on a restaurant chart of accounts is as follows:
- Asset Accounts
- Liability Accounts
- Equity Accounts
- Revenue Accounts
- Expense Accounts
Each of these main accounts should have sub-accounts under them.
For example, under Asset Accounts, sub-accounts could be Cash on Hand, Cash in Bank, Accounts Receivable, etc.
Note: Bookkeepers aren’t allowed to use an account unless it already appears on the company’s chart of accounts.
How to set up a restaurant chart of accounts
You’ll need to set up your chart of accounts using a number system.
Your computerized recording process (for example, QuickBooks) requires you to assign each account a specific account number. So you’ll need to assign account numbers with a designated digit to represent each of your major account classifications.
For example, let’s assume your restaurant accountant designs a 3-digit accounting number system. And since the first major account classification is “Asset S”, the number 1 is assigned as the first digit for all “Asset S” account numbers. Therefore, the number series of 1xx will apply to all Asset Accounts.
Cash is the first sub-account appearing under Asset Accounts. Therefore, in the 3-digit accounts numbering system, the account number assigned for the Cash account will be 101.
Follow the same recipe when cooking up your chart of accounts (COA) for your own restaurant business. Here’s an example of what that could look like:
- 100-Asset Accounts
- 200-Liability Accounts
- 300-Equity Accounts
- 400-Revenue Accounts
- 500-Expense Accounts
Plate IQ helps you upload and map your invoices items to your chart of accounts. The best part? You only have to do it once — the next time you have that item, Plate IQ automatically & accurately codes it to your GL.
Improve your restaurant financial documents with automation
Most of the day-to-day work in accounting is made up of daily, repetitive tasks.
Using automation with your financial statements is a savvy business decision for any restaurateur.
It’s important that your restaurant’s Point of Sale (POS) software allows integration with other software to enable task automation in completing financial statements.
Plate IQ offers you the ability to automate your accounting systems and seamlessly integrate with your platform of choice.
Templates create consistency
Using templates can save time, create consistency, and promote organization throughout your restaurant accounting system.
Templates take the guesswork out of recording your financial information and enable you to stay on top of your restaurant’s finances.
This gives you more time to focus on what you love most about the restaurant business — creating killer food and an amazing customer experience.
Jacob Statler writes about the unique challenges of hospitality AP automation for Plate IQ.
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