The Ctuit Guide to Restaurant Accounting: Tracking Fixed Assets

Fixed Assets are items that have monetary value, but are not cash.  Examples are your building (if you own it), kitchen equipment, computers, tables, chairs, artwork, signage, etc. that have a useful life of two or more years.

When you purchase a fixed asset, it is not purchased to only benefit the month that you bought it.  It is meant to help bring in sales/stay in use for a longer period of time.   A fixed asset is recorded as a long-term asset on the balance sheet, and is amortized (gradually written off) evenly over the life of the asset.   The expense associated with the amortization of your fixed assets is called depreciation expense, and that is found on your income statement.

Be sure not to confuse typical non-perishable restaurant expenses with fixed assets.  Just because it is not food or beverage does not automatically classify the purchase as an asset.  Items that are often confusing are flat wear, glass wear, linens, etc., because they are meant to be long-term.  However, since they can be easily broken, damaged or carried off, and will need to be replaced regularly, they are considered an expense.

Tracking your fixed assets can help you in the following areas:

Tax Benefits:  Fixed assets are items that are meant to be used over years and are taxed accordingly.  Depreciation is an income tax deduction that allows a taxpayer to recover the cost of wear and tear of the property.

A common method of calculating depreciation is known as Straight Line Depreciation (SL).  The formula is:

(Cost – Salvage Value) / Asset Life = SL. As an example, a table that cost $100 with a lifespan of 5 years and a salvage value of $20, will depreciate $16 per year.

Improved Budgeting:  Knowing the value and lifespan of your critical equipment is fundamental to preparing accurate future budgets.  Should a critical asset no longer work, you will need to decide whether it is better to repair it or replace it; better to plan in advance for these situations than to be caught off guard and need to make an uninformed decision.

Insurance:  Tracking your assets can help immensely with insurance claims should you need it due to a disaster.  Be sure to save all documentation (including photos) to the cloud so that you can access it quickly from anywhere if needed.  This can also help you to discern whether you are either over or under insured.  You do not want to be under-insured should a disaster strike, and you certainly do not want to pay to insure equipment that you no longer own.

Best Practices for Tracking Fixed Assets

You should keep a fixed asset subledger and track all of your capital assets.  The ledger should include

  • Name of the asset
  • Date purchased
  • Cost of asset
  • Useful life
  • Monthly depreciation
  • Accumulated depreciation (how much has been depreciated to date)
  • Net book value (original cost less accumulated depreciation)

This subledger, if done properly, should tie to the total value of your fixed assets on your balance sheet (fixed assets and accumulated depreciation).

Don’t forget that when you retire an asset to go back and write it off your balance sheet by reversing it.

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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: