Accrual vs Cash Accounting

In restaurants, timing is everything. When you greet, seat, and feed your guests makes all the difference between a great restaurant experience and a not-so-great one.

The same is true in restaurant accounting. The timing of when we record transactions makes all the difference between insightful reporting and a nearly useless set of books. The distinction is often referred to as “Cash vs Accrual” basis accounting.

Cash basis is the simple way. It's also the one we can’t use. Let’s break it down:

I eat at your restaurant on Friday and I pay with a credit card. By the time my money gets deposited into your account, it's Monday. A bookkeeper using cash basis accounting would record that sale as having happened on Monday because that is when you received the “cash”. As far as your reports are concerned, Mondays look great - because despite being the slowest day of the week in your actual restaurant, it's when you receive money from Friday, Saturday, and Sunday credit card transactions. Misleading, right?

What about expenses? Let’s say my friend delivers produce to your restaurant and is nice enough to offer you thirty-day payment terms. You accept a huge delivery on the 15th of September for a big buyout that you booked that night. By the 16th, all of that fresh product is gone; but you still have almost a month to pay. In the middle of October, you pay for that big delivery and your cash basis bookkeeper records the expense on October 15th, when the “cash” comes out. Well, you didn’t have a buyout that week, so now your books are upside down. You have a huge produce expense recorded for the week, but only a normal week of sales. Bad cost management? No. Bad bookkeeping.

Accrual accounting solves for this. We don’t worry about when the money comes and goes for purposes of preparing your profit & loss statement. Revenue gets recorded on the day you make the sale and expenses get recorded when services are rendered or product gets delivered. This gives you a clear picture of what you are making or losing on any given day, week, month, or year - regardless of how you pay or collect for things.

There is no doubt that accrual basis bookkeeping is more complex; but it is also the only right way to analyze a restaurant. But don’t sweat it. We’ll do it for you!