What Is Restaurant Accounting? | Top Terms and Defintions | Global Shared Services

April 20, 2020

Restaurant accounting is an integral part of running a profitable restaurant business. After all, any business that doesn’t run accounting properly won’t be a proper business for very long.

That said, while accounting is an essential business function, that doesn’t mean it’s a simple one. Actually, in application, it can be fairly complex. In most states, it takes around seven years of education to become a certified public accountant (CPA). The good news is that restaurant business owners don’t need to be CPAs – but they do need to have a basic understanding of what restaurant accounting entails in order to manage it well.

That’s what we’re here for.

In this article, we’ll take a look at the definition of restaurant accounting. We’ll start by unpacking what accounting means in general, then look at how restaurant accounting is unique. Finally, we’ll discuss the various approaches that restaurants can take in facilitating accounting.

Ready? Let’s dive in.

What is accounting?

At a general level, accounting involves (as the word suggests) taking account of business transactions. Investopedia concisely defines it as “the process of recording financial transactions pertaining to a business.”

With that in mind, here are a few additional points to know to give you a fuller conception of the term.

The purpose of accounting.

At a high level, accounting’s purpose is to keep track of financial data. Without accounting, there would be no way to measure income, expenses, or profits. Good accounting keeps data accessible and accurate, allowing business owners the ability to make good decisions that improve profits.

The activities involved in accounting.

At a more granular level, accounting involves summarizing, analyzing, and reporting transactions to oversight agencies, regulators, and tax collection entities. This involves services like accounts payable processing, accounts receivable processing, bank reconciliation, tax processing, the production of financial statements, and more.

In other words, not only do accounting functions keep track of data, they also help to facilitate passage of that data to the correct entities. They ensure that transactions can continue flowing smoothly so that the business can keep running.

The difference between accounting and bookkeeping.

One last point here: semantically, there’s some confusion between the terms accounting and bookkeeping.

While both activities could fall under our above definition of accounting, in common usage, bookkeeping means record-keeping, while accounting typically means record-keeping plus summarization, analysis, and communication. A bookkeeper might keep QuickBooks updated; an accountant might help you to create financial statements or process your taxes.

What makes restaurant accounting unique?

We’ve defined accounting at a general level, but what makes accounting for restaurant businesses different from general accounting?

The main distinction is restaurant accounting’s four-week accounting period. Most businesses use a month-long accounting period, meaning that transactions are grouped by, reported on by, and analyzed by month. This makes annual reports straightforward as there are 12 months to analyze.

Restaurants, though, have transactional trends that are closely correlated to the days of the week. Fridays and Saturdays, for example, are nearly always the busiest restaurant days. This makes month-by-month reporting less helpful – a month with more weekends will always look better than a month with fewer weekends, making data more difficult to decipher.

Yes, that partner can handle day-to-day accounting, but more importantly, they provide proactive financial analysis, budget forecasting, compliance risk-mitigation, reliable reporting, and more.

There are other factors, too; restaurants tend to have higher numbers of employees, are structured uniquely to allow for multiple locations, and, of course, have high numbers of daily transactions. All told, restaurant accounting is certainly unique – but the key differentiator is the 4-week accounting period.

How should restaurants approach accounting?

There are typically two ways that restaurant businesses can approach the function of accounting.

The first (traditional) approach is to make accounting an internal function. This involves hiring additional employees to oversee restaurant accounting activities. Its benefit is that internal employees can potentially develop high levels of expertise in a business’s process and data. However, it comes with numerous drawbacks – it’s not cost-efficient, it doesn’t easily scale, and finance staff turnover can be a serious setback.

Outsourced accounting for restaurants, on the other hand, involves working with third-party service providers to handle accounting activities. This empowers cost-efficiencies (as it avoids hiring costs), enables access to greater expertise, and makes scaling easier. Expanding restaurant businesses with multiple locations should choose outsourced accounting solutions, for reasons we’ve written about in more depth here.

Ready to get started with restaurant accounting?

Hopefully, this overview has been helpful as you familiarize yourself with restaurant accounting. If you’re considering an accounting service solution, get in touch with us.

At Global Shared Services, we provide restaurant accounting solutions that are focused on clear and proactive communication, offer comprehensive finance and accounting services tailored to your needs, and provide deep expertise.

We’ll help you to set a firm financial foundation that’ll empower you to strategically build your restaurant business with a finance and accounting team you can trust.

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