A chart of accounts is basically a listing of areas of income and expenses. The general ledger (GL) is where you record the transactions done in these accounts. It is sort of like looking at how your money comes and goes in your personal bank account, but on steroids. You should begin by assigning codes to each income or expense so that they can be grouped and sorted for reporting.
When setting up your chart of accounts, determine GL codes wisely. There are a number of ways to structure your general ledger (GL), but since you want consistency so that you can compare your results over the years, it is important to really think through the structure you want in the beginning.
Carefully think through how you want to group everything in advance. Adding too many codes can make your accounting tedious and confusing, while too few codes will make it hard to drill down enough to uncover issues. For example, you may want to break your cost accounts into 6-10 accounts (meat, dairy, produce, non-alcoholic beverage, liquor, grocery, bread) to make it easier to track your cost of goods percent. If you serve a good amount of liquor, then you may consider separate categories for beer, wine, and liquor to pinpoint potential issues.
Be sure leave a gap between account numbers so you can add accounts in the future. For example, if you start out with beer, wine and liquor as one code, then later realize that you need to better determine your liquor sales during only the dinner shift, you can go back and add a code for “liquor dinner” without messing up the rest of the accounts.
You can purchase “The Uniform System of Accounts for Restaurants” online to get started. It is a guide to tracking restaurant data, endorsed by the National Restaurant Association. Otherwise, you can set up your own chart of accounts in Excel. Below is a very generic sample:
1,000 – 3,000 = Balance Sheet. Generally, the order is: 1,000 = assets; 2,000 = liabilities; 3,000 = equity; 4,000 = sales/revenue; 5,000 = Cost of Goods Sold; 6,000 = Payroll/labor cost (see page 3 for an example); 7,000 = Other admin costs; 8,000 = rent, depreciation/etc.
Below is an example of how the GL codes will look on your income statement. For brevity, only a sampling of controllable expenses is listed.
* Note that 6000 is “labor and payroll”, however, that category is too broad to help you really understand where you may have issues. Breaking your labor down further really enables you to make better business decisions based on real data.
The Ctuit Guide to Restaurant Accounting provides some high-level accounting concepts and best practices for restauranteurs. In this series, we will cover the most basic accounting principles – the ones that you need to know to get a better understanding of how to run a profitable restaurant.
Read the complete series: