5 essential accounts to include in your restaurant chart of accounts

Your chart of accounts (COA), which is a listing of all the financial accounts in a company's general ledger, is one of the most essential parts of understanding and monitoring your overall financial health in a restaurant. It gives you a bird’s eye view of your assets, liabilities, income and expenses. While basic COAs can certainly get the job done, customizing your COA makes it much easier for you (or whoever handles your books) to track your money and pinpoint issues before they turn into full-blown Houston-we’ve-got-a-problems.

Custom COAs take a little bit of time to set up, but once established, they help you sort through income and expenses, reconcile more efficiently and can make audits less of a nightmare. When really dialed in, they can even provide your team insight into where opportunities might be to cut back or reallocate expenses. The whole, “a watched pot never boils” thing doesn’t apply here. Think of your COA like a caramel sauce – you’ve got to constantly keep your eye on it.

Restaurant expenses, assets and liabilities will differ from operator to operator depending on a number of factors, as no two restaurants run the same way. With that in mind, we’ve put together a list of COA best practices when it comes to customization thanks to our controller in residence, Christian Guidi, and what we’ve seen work for our community of 5,000+ restaurants. This list is by no means exhaustive but should give operators a good jumping-off point when considering what level of detail will work best for your restaurant.

Asset accounts

1. Cash-on-hand accounts

Cash is king so the first asset account you’ll want to make sure you have set up will be for the cash-on-hand at the restaurant. This can be a single account or be broken down into multiple accounts: petty cash (like your “bank” at the restaurant) and the total amount in your cash drawers. The latter is usually static so you might not think you need to track it, but it's still an asset and something you want to control and monitor

Let’s say you have ten drawers with $500 in each drawer, then another $500 in petty cash to rebuild the banks and to pay for any purchases like grabbing limes from the corner store. That $5,500 is an asset, and something you should be tracking in your COA. Plus, the restaurant takes in cash receipts daily, but they might not be deposited every day, so the amount of cash actually at the restaurant is constantly changing. A cash-on-hand account gives you a place to record all the cash activity between when money is received from the customer and when it gets deposited to the bank.

To reconcile this account you just need someone to count all the cash at the restaurant, which is a good daily practice to have in place.

2. Current asset and accounts receivable (AR) accounts

Next, you’ll want to look at setting up an account for each of your primary receivables. And you might be thinking, “I run a restaurant, I don’t have account receivables,” and maybe that’s true. Most restaurants don’t use AR in their accounting system because they are not typically an “accounts receivable” business racking up outstanding debts (unless your restaurant is a front for some other type of business, which for legal reasons, we will not get into here. This is just a blog about restaurant chart of accounts, please get your true crime fix elsewhere). Guests come in and pay the same day, so they don’t owe you money. 

Your restaurant may however have entities that do owe you money like credit card companies, DoorDash, UberEats, Stripe, etc.

Typically these debts are paid quickly, which is why many operators try to manage that reconciliation without specific AR accounts. But since each entity has a different delay, this can be a lot to reconcile and keep track of. 

To make this easier, we recommend setting up a “current asset account,” – which is a very common account type you can set up in pretty much every accounting system – for each organization that owes you money. 

Once each account is set up, MarginEdge sends the expected deposit amounts to each account daily. The expected deposit will be higher than what will actually be deposited because it doesn’t include the fees (shakes fists in the air) the organizations take out. 

Because of this, we recommend setting up a rule in your bank account so each time you get a deposit from one of those companies, you can record it as a transfer from that AR (current asset) account. Then on a periodic basis, or when you get each payment, you can reconcile the payment or account and record the fees they didn’t pay you, which will account for the difference in deposit amounts. 

This lets you separate each vendor so you can accurately reconcile and see how much each one owes you at any given time. It also makes it possible to monitor and make sure the fees being taken are accurate and what you’re expecting, so if a transaction is less or more than what you’re owed, you can remedy the situation immediately. 

Christian shared that while working in a restaurant, he once had a third-party delivery service (that shall remain nameless) owe him nearly $40,000. He told us, “I never would’ve known they owed us that much if their transactions hadn’t been in their own asset account.” With dedicated AR (current asset) accounts, you can pinpoint this information at a glance.

3. Credit card clearing account

The other type of current asset account you may want to set up is a credit card clearing account. If your expected and actual credit card deposits don’t match up because of merchant service processing fees being withheld, or even end-of-day timing issues, this account will let you track these debts and fees more easily. It works by having you post the expected deposit to the account and then when the actual deposit hits your bank account you post it to the same clearing account. 

This account, like the delivery accounts, makes reconciliation easier and lets you know immediately where the numbers are off if and when they don’t add up. Instead of searching for a needle in a haystack, you’re looking for a color-coded pitchfork.

Liabilities accounts

4. Gift card liability account

Oftentimes, restaurants record gift cards as income (aka sales or revenue) when they sell the gift card. This isn’t really accurate though, because the revenue part is going to be recognized when someone comes in and uses the gift card to make a purchase of food or drink. This is what’s known as deferred revenue, which should be looked at as a liability when it comes to accounting.

This account should consist of all the gift cards you’ve sold that haven’t been redeemed yet. It’s important to look at gift cards in this way because when guests come in to use them, they’re not actually going to be paying you for the food and drinks they order. At that point, it’s “free” because it has already been paid for (sometimes months or years in advance).

By recognizing gift card purchases as a liability, not revenue, when the gift card is redeemed, that sale can be booked to the liabilities account. This allows your revenue to be recorded based on the products you sold, not the gift card.

5. Other deferred revenue liability accounts

Another example of a deferred revenue account that can be set up would be for something like private event deposits, where you’ll want to hold funds before the event, because when the balance is paid, the final amount is a fraction of the total cost. When you have the final payment and it’s technically short, you debt the remaining amount from your liability account. 

You’re also able to reconcile the total amount in your liability account to all the deposits for upcoming events. This is similar to the gift card account but is often something operators don’t have on their balance sheet. 

Oftentimes without these accounts, gift cards or event deposits are put in as sales or revenue on a cash basis and don’t end up on a balance sheet. When you do this, you’re exposing yourself to potential future cash flow problems. If you do cash flow projections based on sales and forecast next month you’ll do $100,000 in sales and then have $15,000 worth of gift cards redeemed, you will not end up with that $100,000.

The gift card and deferred revenue liabilities give you a better view of your cash flow because you know how much “revenue” from the gift cards has yet to be redeemed. 

As mentioned above, this list is a starting point for how granular you can get with your restaurant chart of accounts. We’d love to say the more detailed you can make it, the better, but ultimately the best solution is one that works for your team and is sustainable over time. The biggest benefit to organizing your COA is having clear visibility into your finances and being able to quickly pinpoint problems so they can be fixed.