Basic Accounting & Quickbooks

Dial in your numbers.  Take the time to set this up correctly from the beginning!  It will save you time and headaches later!

QUICKBOOKS and your BASIC ACCOUNTING SYSTEM

The easiest, most turn-key small business accounting software is Quickbooks and its ideal for your restaurant, no matter how many locations you grow.  Pick up the latest version of Quickbooks at your favorite retailer and lets begin.

SETTING UP YOUR COMPANY:

Quickbooks is turn-key in that the program will walk you through all the basic questions to set up your new operating company (and real estate company if you own the property). You will determine your fiscal or calendar year, enter bank account balances, and set up your chart of accounts.  I will help you with this in a moment. You may set up and maintain several companies on your computer with one Quickbooks software application and the system backs itself up automatically to your computer, which is retrievable by Quickbooks Headquarters (Intuit, Corp.) in case of emergency.  You can also pay for tech support for any problems, answer questions or to explain how the product works.

BASIC ACCOUNTING

Quickbooks makes entering transactions easy, but the most important ones are entering daily sales, entering and paying bills, recording payments to vendors or other expenses, paying monthly sales tax which automatically accumulates each day that you enter sales, recording payroll, balance your bank account statement, create budgets, etc… There are even reminders you can set up that will notify you when its time to pay bills, etc..   It certainly helps and is a good idea to learn or have a basic knowledge of simple accounting and how each transaction must balance either on the debit or credit side of your Balance Sheet (more on this in a moment).  The Quickbooks program is a good teacher also and the “Help” button and manual are always there for explanation.   Although recording most transactions is simple once you catch on, there are occasionally more complicated transactions that must be recorded with a General Journal entry, such as accounting for the purchase or sale of real estate, company vehicles, depreciated equipment, etc..  Always review these transactions with your CPA and have them provide you with the proper entries.

When you buy something for your business you acquire an asset (something of value) that is either processed and sold (food & beverage) or used in the business (equipment, supplies, etc..). The asset must be paid for either with cash or credit and recorded at the time of the purchase. You have two ways to classify a purchase 1) as a “Capital Asset” which are purchases over $500 that will appear as Fixed Assets on your balance sheet (land and buildings, company cars, restaurant equipment, etc…) or as 2) “Expenses”… all the costs of doing business (other than inventory) that you pay less than $500 for that are recorded on your Profit & Loss Statement.

Balance Sheet

Your balance sheet is basically a Net Worth summary of your business at a given point or date in time.  The Asset side of a balance sheet shows all your tangible current assets (cash accounts/loans or accounts receivable), your fixed assets (over $500) and their recorded values (from the time of purchase).  There is a separate line item for Depreciation, as these assets get used up and ultimately replaced.  Depreciation becomes a tax benefit at year end.  Amortization shows the payment of loan principal balances as they are paid over time. The Liabilities side of the balance sheets shows all your debt obligations both short term and long term, plus Equity accounts that are all investments in the company, as well as Retained Earnings which is an accumulation of operating profits from year after year or deductions from losses.  This statement is called a “balance sheet” because the total of all assets recorded must equal and balance the total of all liabilities and equity, thus the basic balance sheet equation is:   Total Assets = Total Liabilities plus Equity (Net Worth)

Profit & Loss Statement (P & L)

Your P & L is a summary of all Sales Income that comes in to your business and all expenses that are paid out of your business.  The basic equation is:  Sales minus Cost of Goods = Gross Profit  and then:  Gross Profit minus Expenses = Net Income or Net Loss

Quickbooks makes this all pretty simple as there are icons to click depending on the task at hand.. when you want to pay a vendor and record a purchase, simply click on the “Check” icon and fill it out with your keyboard as you would with a pen, including the proper account to assign the transaction…. You’ll quickly get a feel for which accounts you will use over and over to record transactions.

NOTE:  Accounting can be simple or complicated depending on the complexity of transactions.  Although I recommend that you periodically consult your CPA/accountant for review of your records and statements; if not their complete professional work, it is a good idea to at least familiarize yourself with basic transaction entries, as well as basic financial statements (balance sheet and P & L).  

This is important as you will need to communicate with your tax preparer at year end, provide them the records they require and answer specific questions related to your books.  Having at least a basic understanding of the work at hand and how it affects you personally, is time well spent and will pay dividends.

INTERNAL OR EXTERNAL BOOKKEEPER:

Quickbooks is very comprehensive and there are many features you may or may not choose to use.  For instance, it can calculate and perform your entire payroll function in house, right down to printing your employees checks if you want to go that route, but there are complications you should explore before deciding.

In my 20 years running restaurants, I never did payroll in house myself mainly because of the complications of tax withholding and extensive quarterly reporting and filing to the government required versus the reasonable cost of hiring a professional firm that specializes in payroll services.  As with any other service, I recommend shopping your restaurant payroll around to several specialists to compare their service, weekly turnaround time and fees.  Note that most providers charge per employee, as well as charging additional fees to prepare employee W-2 forms at year end and possibly even charging you to add and enter new employee information. Before you make a decision, you have the most leverage with the provider.  Make sure you ask for a free month, free W-2’s, or some other benefit as good will at signing.   ADP, Advantage Payroll, Paychex and others are some of the larger providers with competitive pricing.

You should decide if you have the time and inclination to do your own bookkeeping, hire a part-time office manager or if you wish to hire this function out to a local accountant.  There are benefits to both sides.

Doing it yourself or having a part-time office manager allows accountability and a feeling of control, whereas hiring an outside bookkeeper or accountant takes all the control away.  I’ve done it both ways.  For years, I was my own bookkeeper and this gave me the security of watching every dollar come in and out of my restaurant.  It gave me such a feel for my money that it would have been very difficult for any theft or other dis-honest employee issues.  With a in-house bookkeeper/office manager, you can set some pretty simple check and balances, such as counting all the cash yourself and then verifying daily deposits against bank statements, which also show every check written and cashed against your account.  Not to say there are not reputable professionals and firms out there,

Word To The Wise:  More than one “outside” bookkeeper or accounting firm has been caught embezzling funds from a small business. Once you farm out this function, its very easy to become slack when someone else is doing the work and you’ve got so many other details to worry about in your restaurant.

BASIC QUICKBOOKS ENTRIES:

NOTE:  I have included a complete restaurant Chart of Accounts below.  You will need to set up these accounts in Quickbooks before you begin entering any data.  See my instructions below in Orange on how to set up New accounts in Quickbooks.

Once Logged-in to Quickbooks, begin with the menu bar at the top or the icons on the left.

Paying Bills
  • Click the “Check Icon” on left side of screen or click “Banking” then “Write Checks” from menu bar
  • Enter the date, paid to whom and the amount of the payment
  • Enter a memo to remind you of what the check is for (optional)
  • Classify the payment to the correct account from your chart of accounts

NOTE:  Some transactions will be very simple and straightforward with only one account to assign to the payment. Others will be extensive such as credit card bills with multiple accounts assigned such as gas, printing services, travel & entertainment, supplies, etc…  Your food invoices from vendors will have multiple accounts such as food, bar items, cleaning supplies, operating supplies, etc..

Entering Bills as Accounts Payable

There are two ways to pay bills…

1)  Keep invoices in a file folder and pay them when due or

2) Enter invoices as “Bills” in Quickbooks with a date due and then Quickbooks will remind you to pay each one on time.

If you go with choice 1), you wait until you pay the bill to enter the data in Quickbooks.  With choice 2), you enter the data first in Quickbooks and then wait until the bill is due to pay it.

  • Click “Vendors” from the menu bar
  • Click “Enter Bills”
  • Set up the new vendor by typing vendor name…Quickbooks will ask you to either SET UP the new vendor with complete information or QUICK ADD just the vendor’s name.
  • Enter an Account or Reference Number (optional)
  • Enter the Amount Due
  • Enter the Terms (Net 15, Net 30, etc..) Or the Bill Due Date
  • Click “Save”
When the payment is due:
  • Click “Vendors” from the menu bar
  • Click “Pay Bills”
  • Click correct Payment Method
  • Click the correct Payment Account where funds will be drawn from
  • Drag your cursor to the “check mark” column next to each bill to be paid and click
  • Click OK
Enter Daily Sales
  • Click “Banking” from menu bar
  • Click “Make Deposits” In “Received From” column
  • Enter your State name
  • Click “Set Up” In “From Account” column
  • Enter the following Sales accounts:
    • Sales Tax Payable
    • Sales – Food
    • Sales – Beverage
    • Sales – Liquor
    • Sales – Beer
    • Sales – Wine
    • Sales – Retail Merchandise
    • Gift Cards (sold)
    • Gift Cards (redeemed)
    • Other Expense – Sales Discount
    • Other Expense – (use for miscellaneous paid outs during the shift)
    • Other Expense – (use for miscellaneous paid outs during the shift)
  • Click Edit from menu bar
  • Click Memorize Deposit
  • Name it “Daily Sales”
  • Click OK

To record sales each night or at week end:

  • Click “Lists” from menu bar
  • Click Memorized Transactions
  • Highlight “Daily Sales”
  • Click the icon in the middle bottom left (looks like a sun)
  • Click Use
  • Select “Cash – Transfer” account and enter the day’s date

NOTE:  To easily reconcile your bank statement at month end, all cash and credit card deposits to your bank account should be separated with all payments entered to the Transfer account. For each day, Transfer “credit card” payments from the Transfer Account to your Cash Bank Account in Quickbooks.  Then at the end of your week, individually transfer each days cash sales to your Cash Bank Account to zero out the transfer account at the end of each week.  If this is done correctly, you will then see individual credit card and cash deposits for each day of the week in your bank account which can then be easily found when reconciling your bank statement. Enter the dollar amount in right side column for each sales account  

NOTE:  When you have Gift Cards redeemed, enter a minus (-) sign in front of the dollar amount.  When you have Cash Paid Outs from your cash register, enter a minus sign (-) in front of the dollar amount using the “Other Expense” category. 

  • Click “OK” (Total sales for that day including both cash and credit cards will now be recorded in the Transfer account (see above for explanation to move cash from the Transfer account to your bank account)
Paying Monthly Sales Tax

Your new Daily Sales Memorized Transaction created above, automatically compiles Sales Tax for each day in Quickbooks as you enter the data.

When sales tax is due each month:

  • Click “Vendors” from the menu bar
  • Click “Pay Sales Tax”
  • Drag your cursor to the “Pay” box next to the sales tax amount due
  • Click a “checkmark” into the pay box
  • Click “OK”
Reconciling your Bank Statement
  • Click “Banking” from the menu bar
  • Click “Reconcile”
  • Select the correct “Cash” account to reconcile
  • Enter the Ending Balance from your bank statement
  • Enter any service charges and if so, select the account called “G & A – Bank Charges”
  • Find each transaction shown on your bank statement as either a “deposit/credit” or “check payment/debit”
  • Click a “checkmark” next to each transaction in Quickbooks and on your statement. When finished checkmarking all transactions, make sure it balances to “0”
  • Click “Reconcile”
  • Print a summary report
Creating Invoices
  • Click “Customers” from menu bar
  • Click “Create Invoices”
  • Fill in “Bill To” information
  • Enter “Terms”
  • Create a new item (what you sold) by typing the name in the field
  • Click “Set Up”
  • Enter a “Description”
  • Enter “Quantity” and “Rate”
  • Click “Save”
Receiving and Recording Payments for Invoices
  • Click “Customers” in the menu bar
  • Click “Receive Payments”
  • Select “Payment Method”
  • Drag cursor to checkmark column and click a “checkmark” next to the correct customer payment received
  • Verify that the “Deposit To” account is your correct bank account
  • Click “Save”
Viewing Financial Reports

Periodically you will want to review your financial statements

  • Click “Reports” in the menu bar
  • Click “Company & Financial”
  • Click either “Profit & Loss” or “Balance Sheet” and enter the correct date range

You can customize your report to compare against prior periods

  • Under “Dates” to the left of your “Date Range”, Click “Custom Dates” from the dropdown list
  • Select “the prior period” you wish to compare (Last Fiscal Year, Last Quarter, Last Week to Date, etc…
Recording Inventory

The Academy includes a complete tutorial on counting food & beverage inventory and using  the spreadsheet templates to calculate your product cost percentages.  I always recommend if you are  just starting your new restaurant and have little or no prior experience, that you take inventory every  two weeks until your cost percentages are stable and that they fall within your target range.  First, begin  by using the spreadsheets to calculate your ending inventory totals for food, beverage and retail  merchandise (if you sell merchandise). Once you’ve calculated your ending inventory totals, below is the basic instructions to setup your  inventory system in Quickbooks. If you sell retail Merchandise such as T-shirts, hats, logo glassware,  etc.., you will see entries below to record the value of your merchandise as well.

To set up your system, follow these steps:
  • Click “Company” in the menu bar
  • Click “Make General Journal Entries” Under “Accounts”
  • Enter the following list in order:
    • 2010- Inventory-Food
    • 2020- Inventory-Beverages
    • 2030- Inventory-Liquor
    • 2040- Inventory-Retail Merchandise
    • 8010- Cost of Goods-Food
    • 8020- Cost of Goods-Beverages
    • 8030- Cost of Goods-Liquor
    • 8040- Cost of Goods-Retail Merchandise
  • Click “Edit” in the menu bar
  • Click “Copy Memorized Transaction”
  • Name it “Inventory” (don’t worry about  the reminders)
To use and record your inventory totals, follow these steps:
  • Click “Lists” in the menu bar
  • Click “Memorized Transactions”
  • Click on “Inventory” to highlight it
  • Click the “sun” icon at bottom of page middle
  • Click “Use”
  • Enter your Ending Inventory totals in the Debit and Credit columns  as instructed below in red

NOTE:  As you look at your “Inventory” memorized transaction in Quickbooks, you will see a Debit Column on the left and a Credit column on the right.  Depending if your current inventory total is higher or lower than the prior period, you will use either the debit or credit column to enter your totals for Inventory and Cost of Goods. 

As you take a monthly inventory, you have a prior inventory period and a current inventory period.   If you are about to open your restaurant or have just started business, you will have 0 (zero) for your  prior period inventory totals.  The current period totals will come from your recent (first) counts entered into the spreadsheets.  If you have been in business awhile, you will have actual dollar value totals (not zero) for the prior period and current period.

When you have your prior and current inventory totals, plug them into your memorized transaction as  follows:

I’ll use Food as the example:

Food Total – Assuming your prior period is 0 (zero) and your current period is $1000, then your Ending Inventory total increased by $1000, so enter $1000 in the Debit Column for Inventory- Food and enter $1000 in the Credit Column for Cost of Goods- Food.

After you have been open awhile, if your prior period total is greater than your current period total, then do just the opposite with your entry… Enter $1000 in the Credit column for Inventory-Food and enter $1000 in the Debit column for Cost of Goods-Food.

Repeat this same procedure with Beverages, Liquor and Retail Merchandise.

  • Click “OK” and your correct Ending Inventory totals will appear on your Balance Sheet.

Its always a good idea to view your Balance Sheet to verify that you entered everything correctly.

 YOUR CHART OF ACCOUNTS:

Your Chart of Accounts includes the Category heading, and the Name of each account (shown on the left below) and the name of its Classification, whether its an asset, income, expense, liability/debt or equity (shown on the right).  As you set up your new company in Quickbooks, you will create a basic chart of accounts as you go through the process, but note that this list will be incomplete.  You will need to Add most of the restaurant specific accounts that I list for you below.  You can add and customize your accounts at any time. When time allows, create new restaurant accounts from the ones shown below.

NOTE:  If you own Real Estate for your restaurant, all accounts marked in Red are those accounts that should be separated and recorded under a separate real estate or property management company in Quickbooks. If you do Not own the real estate than those items in red are to be recorded in your operating company books with all other accounts in black. In the real estate example, I recommend for liability purposes that all valuable fixed assets be owned by the real estate holding company and all cash be regularly paid out of your operating company (the restaurant) to the real estate company as rent.  This way, if your operating company (the restaurant) is sued, there will be little or no assets of value that can be taken in court .  Your real estate company is just the property owner and technically has no liability or decision making power on behalf of your operating company (the restaurant).  

NOTE ALSO:  All bank loans for your restaurant and/or equipment, company vehicles, etc… should be opened under (or transferred to) the name of your real estate holding company.  Consult your attorney for professional advice on this matter.

Setting up New accounts in Quickbooks:
  • Click “Lists” from the menu bar
  • Click “Chart of Accounts”
  • Click on the “Plus Sign (+)” at bottom left
  • Select the “Type” (bank, asset, expense, liability, etc..)
  • Number it according to the sequence of where it fits (bank, asset, expense, liab., etc..)
  • Name it If it fits under an existing Sub-Account
  • Click the ‘Sub-Account’ button and select the correct sub-account from the drop down list
  • Click ‘OK’

 

See printable Manual – “Setting Up Quickbooks For Restaurants”