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Restaurant Financial Basics. Selected type: Paperback. Added to Your Shopping Cart. Evaluation Copy Request an Evaluation Copy. E-Book Rental Days. This is a dummy description. JACK D. Permissions Request permission to reuse content from this site. Table of contents Preface. Introduction to Financial Management. Debits and Credits-The Mechanics of Accounting. The Balance Sheet. High standards come from more than demanding goals, of course.

Like top coaches, military leaders, or symphony conductors, top general managers set a personal example in terms of the long hours they work, their obvious commitment to success, and the consistent quality of their efforts. Moreover, they set and reinforce high standards in small ways that quickly mount up. Their managers have to know the details of their business or function, not just the big picture. The best GMs set tight deadlines and enforce them. Above all, they are impossible to satisfy. One general manager, for instance, asks key managers to rank subordinates yearly on a scale from one to nine.

Then he reminds everyone that the same performance it took to get a six this year will earn only a five next year. Sure, this approach creates extra stress, possibly even frustration. It also reduces complacency, encourages personal growth, and yields better results. The second element of the work environment that GMs consistently influence is the basic business concepts the company adopts.

In short, this overview defines how the company is going to be different—and better—from a collection of totally independent businesses. Moreover, because every business environment changes over time, the best general managers constantly ask: What kind of business do we want to run?

Are we in the right fields? Do we still have viable positions in each? How should we be reshaping the business?

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The result of this process is a set of business concepts that shift in small ways in a consistent direction. The company, which has a fine corporate track record over several decades, wants to be the leader in the lower-tech growth segments of health care, so it has a broad-based business, facing diverse smaller competitors all around the globe. To remain a leader, CEO James Burke feels that he and his managers have to excel at spotting promising new market segments early, tailoring products to serve them, and getting those products to market quickly.

They do this through a network of roughly tightly focused, freestanding operating companies. This highly decentralized organization is skilled at marketing and product innovation and supported by a corporate credo that glues everything together into a very humane yet competitive company. In several major parts of the business, customers have decided they want fewer suppliers and better integrated distribution and administrative services.

Fast-paced, innovative businesses require different managers than companies in slow-growth, grind-it-out businesses where the emphasis is on cost control and high volume. For example, one aggressive, growth-oriented company decided it needed: a mix of high-potential managers, not a few good managers at the top with implementers below; innovative managers who act like owners, not administrators content to pass decisions up the line; and ambitious quick learners, not people content to move slowly up the corporate ladder.

To determine what does apply, a GM focuses on two questions: What kind of managers do we need to compete effectively, now and in the foreseeable future? What do we have to do to attract, motivate, and keep these people? He has a keen sense of the kind of organization he wants Cummins to be. Moreover, this deep concern for fellow employees and high ethical standards permeate Cummins—just as they did when Irwin Miller was CEO.

And of course, there are always a few whose own values are flawed or expedient, but who are nonetheless successful in the short run. In time, however, character flaws or even shortcomings like inconsistency do catch up with people—causing serious problems for both the GM and the company.

Since the general manager is the only executive who can commit the entire organization to a particular strategy, the best GMs are invariably involved in strategy formulation, spearheading the effort, not just presiding over it. To avoid these problems, Johnson envisioned a supermarket of 50 to 60 funds that offer customers every conceivable investment focus plus superior service. Moreover, with so many funds operating, Fidelity always has four or five winners to brag about.

But Farrell saw an opportunity in the fact that competitors like Sears were diversifying into financial services, while others were moving into specialty stores. Instead of following the crowd, he focused his company on becoming the merchandising and operating leader in the department store business in each of its markets. He centralized merchandising concepts, priced aggressively, eliminated loser departments, built strong execution-driven local managements, and got control of costs. The result: while former key competitors like Allied, ADG, and Federated were stumbling, May emerged as the largest, best run publicly held company in its chosen field.

Next, high-impact GMs regard competitiveness gaps—in products, features, service—as crises. Closing those gaps becomes their overriding priority, not just another important business problem. Too many GMs—not just the ones in Detroit—build their strategies around unsupported assumptions and wishful thinking about their comparative performance.

In return, it got fewer rejects, better products, more market share, and higher earnings per share. Guess who changed his views—five years too late—about where his company stood and what was required to regain market leadership? Today you cannot write about strategy without talking about giving customers better value than your competitors do. Yet talking about the concept and making it live are two different things. Outstanding GMs seem to be personally committed to serving customers better and to producing better performing products.

Instead of just looking inward, they get their competitive information first-hand by talking to knowledgeable customers and distributors. And that knowledge gives them the conviction they need to make things happen and gain a competitive edge. Recognizing that lasting competitive edges are hard to generate, the best GMs build on existing strengths while searching out new sources of advantage.

First, they improve sales and profits of their strongest products, in their strongest markets, with their strongest distributors. Then they use the resulting faster payoffs to help fund the search for future edges. In the s, for example, Pepsi concentrated on its heartland markets, grocery chains, and new large packages—all Pepsi strengths. By contrast, in the s, Pepsi spent so much of its money and effort trying to prop up weaker markets, products, and channels that it lacked the resources to go all out in stronger areas. Actually, it was the other way round, just as it is for most companies.

A separate account should be maintained for each type of inventory. Food inventory consists of the cost of food on hand in the storeroom, pantries, kitchens, freezers, etc. Beverage inventory consists of stock at the bars, in the storeroom, etc. Separate inventory accounts should be maintained for other merchandise for sale and for cleaning, office, and other supplies.

Marketable securities. This is an account for recording investments made on a temporary basis using surplus cash.

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A separate account should be established for each prepaid expense item such as rent, licenses, and unexpired insurance. This account is used to record assets that are not readily liquidated. Examples include long-term stocks and bonds, which are usually reported at cost. This account is used to record land purchased that is used in the business. This account is used to record the purchase of buildings used by the restaurant.

This account is used to record the purchase of equipment. This account is used to record the purchase of furniture. This account is used to record the purchase of china, glassware, silver, and linen. Alternatively, many restaurants expense these items when purchased. Accumulated depreciation. This account is used for recording depreciation over the useful life of an asset such as equipment. Deposits with utility companies for water, gas, etc. Accounts payable—others. Amounts due concessionaires representing collections from guests or extraordinarily large open accounts such as might result from equipment purchases are shown in this account.

Notes payable. This account is used for short-term notes owed by the restaurant. Taxes payable. This group of accounts one for each type of tax is established to record taxes due to government authorities. Examples include federal, state, and city withholding payables, FICA social security payable, sales taxes payable, and federal and state income taxes payable. Accrued expenses. This group of accounts is maintained for recording the amounts payable for expenses incurred at or near the end of an accounting period, including accrued payroll, utilities, interest, and rent.

Dividends payable. This account is for recording dividends payable based on formal declaration of dividend action by the board of directors. Note: This account is not applicable to unincorporated businesses. Long-term debt. This group of accounts is to record debt that is not due for 12 months from the balance sheet date, including mortgage payable, notes payable, and bonds payable. A separate account is established for each debt. The initial investment less withdrawals and operating losses plus operating profits results in the balance. If the business is organized as a partnership, a separate account is maintained for each partner.

This group of accounts is used for recording each type of stock issued. Paid-in capital in excess of par. This account is used for recording proceeds from sale of capital stock in excess of the par value. A separate account should be established for each type of stock. Retained earnings. The amount of earnings retained in the restaurant is recorded in this account.

These accounts are extremely important for collecting financial information for management decisions. The accounts are generally self-explanatory, and some of the many accounts that can be used by restaurants are listed above. Definitions Debit simply is an entry on the left side of an account, while credit is simply an entry on the right side of an account. Debits are increases to some accounts but decreases to others; credits increase certain accounts but decrease others.

All transactions are recorded with at least one debit and one credit entry, and in all cases, the total of debits must equal the total of credits for an entry. Illustrations of these nine types of transactions follow. Increase one asset and decrease another asset. Equipment and Cr. Cash 2. Increase an asset and increase a liability. Cash and Cr. Owner, Capital 4. Increase one liability and decrease another liability. Example: A note is made in exchange for an account payable.

Accounts payable and Cr. Notes payable 5.

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Decrease a liability and decrease an asset. Example: A supplier is paid on account. Cash 6. Example: Dividends are declared. Retained earnings and Cr. Dividends payable 7. Example: Cash is withdrawn by the proprietor. Owner, Capital and Cr. Cash 8. Long-term debt and Cr.

Doe, Capital 9. Example: Preferred stock is converted to common stock. Preferred stock and Cr. Determine which accounts are affected. Determine whether to debit or credit the accounts. Determine the amounts to be recorded.

Step 1: Affected accounts? Equipment is obtained, and cash is disbursed. Step 2: Debit or credit? Since the equipment account an asset increased, the account must be debited; cash is decreased so it must be credited. Step 3: Amount? Account Balances To determine an account balance, the debits and credits in the account must be totaled, and the lesser of the two is subtracted from the larger.

An account has a debit balance if the sum of the debits for the account exceeds the sum of the credits for the same account. Conversely, an account has a credit balance if the sum of the credits for the account exceeds the sum of the debits for the same account. The debit balance for the cash account is normal; that is, asset accounts generally have debit balances. These five transactions will be used to illustrate debits and credits. Transaction Dr. Entry 1. Cash 1. Luis Alvarez, Capital 5, 1. Prepaid Rent 2. Purchase of Dr. Equipment 10, 2. Cash 1, 3.

Notes Payable 9, 3.

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Dinner sold for Dr. Food for the dinner Dr. Luis Alvarez, Capital 2. The preceding transactions are recorded in T accounts as follows: Cash Prepaid Rent Equipment 1 5, 4 5, 2 2, 3 1, 5 1, 2 2, 3 10, Bal. A trial balance provides proof that the debits equal the credits. Still, problems may exist.

For example, an amount may have been recorded in the wrong account, but the trial balance would still be in balance. Step 1: Determine the balance of each account. Step 2: List all accounts, placing debit and credit balances in separate columns. Step 3: Sum the debit and credit columns separately. Step 4: Compare the total of the debit and credit columns. The cost of the expenses generally results in a decrease in assets and an increase in expenses.

For example, if steaks are withdrawn from the refrigerator for preparation and sales, an asset account inventory is decreased and an expense account food cost is increased. Note: Sales and expense transactions do not need to involve cash directly. For example, food may be sold to a guest on account, and the food sold may be taken from inventory. A sale on account results in a debit to accounts receivable and a credit to food sales both are increased. The food sold results in a debit to one account cost of food sold and a credit to an asset account food inventory.

When the guest pays the bill, the cash received will reduce the accounts receivable. The entry will be a debit to cash to increase it and a credit to accounts receivable to decrease it. The food inventory was purchased either on account or for cash. If purchased for cash, then the entry debiting the food inventory to increase its value and crediting cash to decrease its balance was already recorded when the food was purchased. If the food inventory was purchased on account, then the entry at the time of purchase was a debit to the food inventory account to increase it and a credit to accounts payable to increase it.

In this case, when the accounts payable is paid, cash will be reduced. The entry would be to debit accounts payable to decrease it and credit cash to decrease it. Accruals and Adjustments to Income In many restaurants, hundreds or even thousands of sales and expense transactions occur daily. However, even so, by the end of the accounting period, not all expenses will have been properly recorded.

In other words, sales that have been recorded less expenses that have been recorded will still not be an accurate measurement of income. The major principle on which these adjustments are based is matching. Expenses matched to revenues as discussed in chapter 1. This GAAP states that expenses for the period must be matched to the revenue generated by incurring the expenses. After the recognition of expenses based on accruals and adjustments, income for the period is determined.

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At the end of an accounting period, several adjusting entries are necessary to match expenses with revenues for the period. The result is that a sizable inventory of food and beverage items will be on hand at the end of the period. These items must be physically counted and priced so inventory value can be costed. Previously, two entries were provided that affected revenue and expense accounts: Note: The food was used when purchased. Additional entries are as follows: Recorded as food inventory. Payments are to several employees; to simplify, they are recorded as one entry.

Recorded as an expense and not inventoried. All sales were cash and, to simplify, are recorded as one entry. Depreciation has not been calculated. Rent expense has not been determined. Interest expense has not been accrued. Unpaid bills on hand at the end of the period have not been recorded.

The method of calculating food adjustment reflects the difference between the value of costs that reflects the differending inventory and the value of beginning invenences in beginning and endtory. If ending inventory exceeds beginning inventory, ing food inventory values then the adjustment will reduce the cost of food sold costs. Restaurants may purchase insurance coverage for an extended period or pay rent in advance and then debit a prepaid expense asset account.

Then, over the period of time benefited, the restaurant recognizes the expense by making periodic adjustments. Other expenditures that restaurant managers may record as prepaid and expense over time or with use include rent and office and cleaning supplies. These assets will ble, material in amount, benefit the restaurant for several years, yet as the fixed used in operations to generassets are used, they are slowly consumed in a process ate revenue, and will benefit the restaurant for more than called depreciation.

There are several different methods of depreciation available that, when followed consistently, can provide a reasonable estimate of cost of a fixed asset used during a specific amount of time. The best known depreciation method is called the straight-line method SL. With this method, the same amount is depreciated each period. The formula for the SL method is: Depreciation. Salvage value is the estimated value of what the fixed asset can be sold for at the end of its useful life.

The useful life refers to the number of years the fixed asset should benefit the restaurant. The first element of the formula the cost is known; the second and third factors are based on estimates. The accumulated depreciation account is a contra-asset account; its normal balance is a credit. Other common depreciation methods are sumof-the-years digits and declining balance.

Both of these methods result in greater amounts of depreciation in the early years of the life of the fixed asset. For this reason they are commonly referred to as accelerated depreciation methods. Accrual transactions affect expense and liability accounts. Most restaurant managers pay employees on a weekly or biweekly every two weeks basis. As a result, at the end of an accounting period such as a month , the employees may have worked a few days for which they have not been paid.

The GAAP of matching requires that unpaid wages be calculated and recorded during the period in which the incurred expense resulted in revenue. The current pay period ends on August 10; therefore, the accrued payroll for four days July 28—31 must be calculated and recorded for the present accounting period. This accrual is recorded as follows: Payroll accruals. For a second example, consider the accrual of interest. Generally, notes signed by restaurant managers require periodic interest payments in addition to paying part or all of the principal amount of the note.

However, at the end of an accounting period, the interest may not have been paid through the last day of the period. Therefore, the GAAP of matching requires that the interest be accrued. The adjustment to record accrued interest is a debit to interest expense and a credit to accrued interest a liability account. The note indicates that interest is to be paid on March 15 and September 15 of each year. To recognize the food inventory at the end of the period and to recognize the cost of food sold, the following adjustment A1 is recorded.

The monthly depreciation depr. Assume the equipment was purchased on the first day of the month and that 29 additional days have passed by the end of the month. A5 Utilities Bal. The balance sheet and income statement will be covered in detail in later chapters. To close an account is to clear it to a zero balance. If the zero balance. The result is that the sales and expense accounts are closed out.

Figure 2. This is not an expense account and should not appear on the income statement. The board of directors of a foodservice firm organized as a corporation may declare dividends. When the dividends are paid, the dividends payable account is debited, and the cash account is credited. Now, the cycle that encompasses all these accounting techniques will be discussed. The accounting cycle occurs every accounting period.

A brief discussion of each of the steps in the accounting cycle follows. Journalizing Journalizing is the accounting procedure of recording transactions in a journal. In the journalizing process, the transaction is analyzed and classified. Analyzing determines what type of transaction is to be recorded and the amounts that are involved. Classifying involves determining which accounts are affected. Recording is simply writing, processing, or in some other way entering information in a journal a book of original entry. The most simple and common journal is the general journal. All adjustments and closing entries are recorded in the general journal.

This will generally be the initials and page number of a journal. The transaction would be posted to the cash account as shown in Figure 2. If the balance for an asset account is a credit, then the credit balance is indicated by bracketing the total. The account number for cash in Figure 2. Restaurants generally assign ranges of account numbers to identify accounts. For example, a restaurant may assign account numbers — for asset accounts, — for liability accounts, etc.

The major purpose is to simplify the posting process. When an amount is posted to an account, the account number rather than the account title is written in the journal. Each restaurant will use a different numbering system, depending on its needs. This proof is usually conducted just prior to recording adjusting entries. Adjustments The fourth step in the accounting cycle involves determining and recording the appropriate adjustments adjusting entries at the end of the accounting period. Generally, adjusting entries are prepared for a inventory accounts, b prepaid expense accounts, c recording depreciation, and d recording accruals.

Adjusting entries such as depreciation recorded at the end of every accounting period are often called standard journal entries. After the adjusting entries are recorded in the general journal, they must be posted to the general ledger accounts. Preparing an Adjusted Trial Balance As a check that adjusting entries have been properly posted, an adjusted trial balance is prepared.

The process is the same as preparing a trial balance except that it follows the recording and posting of the adjusting entries. Preparation of Financial Statements The balance sheet and income statement may be prepared directly from either the adjusted trial balance or from the general ledger accounts. Other financial statements such as those involving cash flow and retained earnings may also be prepared at this time.

The information for these two statements does not come directly from account balances; it is taken from the details of both the accounts and specialized journals. Closing Temporar y Proprietorship Accounts This step in the accounting cycle includes recording and posting the closing entries. The closing entries result clear these accounts so that operating results and withdrawals of the following period can be recorded.

Post-Closing Trial Balance This final step, like the trial balances done earlier, tests the equality of debit and credit balance accounts. If debit and credit balance accounts are equal, the accounting cycle is complete.

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It is simple and will accommodate any transaction; however, every entry recorded in the general journal must be posted separately to general ledger accounts. To achieve efficiency in accounting, specialized journals are used. These journals have columns for frequently used accounts so that account titles are not written each time a routine transaction occurs. The column total, rather than each entry, is posted to the appropriate general ledger account.

Specialized journals permit several bookkeepers to take part in the recording process—each handling a different journal. For example, a specialized journal for recording cash receipts will have a cash column. Rather than post each cash entry to the cash account, the total of all cash entries is posted. The following discussion illustrates the use of specialized journals. Varied formats are used by restaurants in practice, and the specialized journals presented will not correspond with those of any particular business.

However, the general functions discussed are performed in accounting systems of almost all restaurants. One common specialized journal records all transactions involving cash receipts see Figure 2. One column is used for cash; other columns relate to common reasons for cash receipts. Note in each case cash is shown as received, and there is an equal amount of credits. At the end of the accounting period, the journal columns are totaled and cross-footed; that is, the totals of the credit columns must equal the total of the debit columns.

The totals of the cash, accounts receivable, and sales columns are posted to the proper general ledger accounts. In restaurants serving alcoholic beverages it is desirable to separate food and beverage sales by establishing separate columns for food sales and beverage sales. If sales tax is charged, a sales tax column should be included. Sales Journal Another specialized journal is the sales journal. Restaurants vidual financial transactions that account for sales of food and beverages separately, involving credit accounts receivable and cash sales.

If applicable, a sales tax column is also included. At the end of the accounting period, the columns are totaled, and the journal is cross-footed. After the proof that debits equal credits, the column totals are posted to the proper accounts. Some restaurants will combine the cash receipts and sales journals into a format similar to that illustrated in Figure 2. Rhoads 18 00 18 00 1 J. Adams 22 00 22 00 1 M.

Gordon 34 00 34 00 Figure 2. This journal has separate columns initially record all non-payfor cash and accounts payable. Note in Figure 2. At the end of the accounting period, the columns are totaled and cross-footed. The totals of the accounts payable and cash columns are posted to the respective accounts. Most restaurants establish columns for frequently debited accounts.

Rhoads 18 00 00 1 J. Adams 22 00 00 1 M. Gordon 34 00 00 Figure 2. Only purchases on book used to initially record account are recorded here. Generally, individual individual financial transaccolumns are established for food purchases and ac- tions involving purchases on counts payable. Columns should be established for account accounts payable. Note that each entry in Figure 2. At the end of the accounting period, the journal columns are totaled and cross-footed.

The totals for the food inventory and accounts payable columns are posted to their respective accounts. The entries in the other column are posted to the individual accounts. Payroll Journal A final specialized journal is the payroll journal, used to record payroll checks see Figure 2. Payable Dues Pay Check No. Davis 00 12 06 20 00 15 00 4 50 44 G. Evans 00 20 10 50 00 15 00 0 00 90 Figure 2. There are generally several other columns, depending on additional tax withholdings and deductions for items including union dues, health insurance, etc.

As with the other specialized journals, at the end of the accounting period the columns are totaled, proved, and posted to the appropriate general ledger accounts. WWW: Internet Assistant Basic accounting courses are typically offered in college hospitality programs. Manager has an up-to-date list of all business-related liabilities. Trial balances are prepared on all accounts on a monthly basis. Where possible, expenses for a given time period are matched to revenue generated during that same time period.

Periodic food and beverage inventories are taken at the end of each accounting period usually one month. A balance sheet and income statement are produced by the restaurant at regular monthly intervals. Management has designated one individual or entity to be in charge of each phase of the accounting cycle. Specialized journals appropriate for the restaurant have been developed and are in use. Manager has an up-to-date list of all business-related assets. It will help you understand exactly where your restaurant stands financially at the time it is prepared.

The assets listed on the balance sheet include a variety of restaurant resources such as cash, money owed to the restaurant accounts receivable , inventories, land, and equipment. Liabilities detailed on the balance sheet will include amounts owed to vendors and in some cases employees, as well as any short- or long-term debts the restaurant has incurred.

A sole proprietor one person , a partnership, or a corporation may own restaurants, but all of these are interested in knowing their equity position in the restaurant. The balance sheet shows that equity position. The chapter concludes with a sample of an actual balance sheet developed in accordance with the Uniform System of Accounts for Restaurants for your review.

The final outputs of the accounting cycle are financial statements. The balance sheet and the income statement are the best known and, to many users, the most useful of the financial statements. This chapter addresses the purposes and content of the balance sheet and presents a format recommended by the Uniform System of Accounts for Restaurants. General footnotes to financial statements are also discussed. If a second balance and net worth of the restausheet were prepared for the operation even one day rant at a single point in time after the end of the accounting period, it would prob generally month-end.

Financial information from the balance sheet is used by different users for different reasons. All assets are eventually converted, either directly or indirectly, to cash. This process may result in a partial loss such as uncollected accounts receivable. It is converted to an expense through a depreciation process. Cash on hand is cash available for alternative future uses such as paying bills and disbursing to owners. Fixed assets represent a fairly high percentage of the total assets of many restaurants. Several years are required to fully use these assets in the business.

This reflects how the restaurant has been financed. The greater the amount of debt financing with equity, the greater the financial risk. A restaurant that has used debt to finance a large percentage of its fixed assets may have a difficult time securing financing for more debt.

For a corporation, retained earnings is the sum of past earnings retained in the business. For a sole proprietorship, past earnings are part of the name of proprietor , Capital. For example, the account for James Smith, the sole owner of a foodservice business, would simply be James Smith, Capital. Generally, the greater the retention of internally generated funds, the less borrowing will be required during an expansion period.

The past several years have seen a renewed interest in the balance sheet. Some firms that have consistently reported profits on their income statement have gone bankrupt or are nearly bankrupt a short time later because they were unable to pay their bills as they became due. The balance sheet reveals the amount of debt. This includes the use of ratios to relate balance sheet items to each other and to assess the relationship between operating income statement information and balance sheet items.

Note: Ratios will be discussed in chapter 5. Examples include cash, product inventories, equipment, land, and buildings.

Management Accounting for Hotels and Restaurants: 1st Edition (Paperback) - Routledge

Examples include amounts owed to suppliers, to lenders for long-term debt The balance sheet contains two major categories: assets and liabilities. Assets Assets are normally of four general categories: current assets, fixed assets, investments, and other assets.

Each restaurant should develop a list of accounts, depending on its specific needs. Current assets are the first type shown on the balance sheet. Current assets are cash, assets that that can be readily converted can readily be converted to cash, and other assets exto cash, and other assets pected to be used by the restaurant within one year.

Current assets are normally listed in order of their liquidity; cash is listed first, followed by the next current asset that can be most quickly converted to cash. The cash account normally includes cash on hand in house funds, change banks, undeposited cash receipts, and cash on deposit with banks. It is common for different bank accounts to be shown separately on the balance sheet.

For example, in addition to a general banking account, a restaurant may maintain a payroll account. If the amount from employees and officers is significant, this should be shown separately. The value of accounts receivable should be that estimated to be collected; in other words, the total amount due is reduced by an allowance for doubtful accounts the estimated amount of accounts receivable that is not likely to be collected. Notes due Promissory notes due to the beyond 12 months from the balance sheet restaurant within one year.

Notes receivable, like accounts receivable, should be reported on the balance sheet at their net realizable value. An allowance for doubtful notes should be established for notes or portion of notes not considered collectible. Inventory consists of the value of INVENTORY The value of the food, beverages, and other goods on hand at food, beverages, and other the end of the accounting period available for goods on hand that are sale. This normally includes food in store- available for sale at the end rooms, freezers, pantries, kitchens, and stor- of the accounting period.

Inventory values ideally should be reported at the lower of cost or market value. However, because of the rapid turnover of inventory, many restaurants value inventories at specific item cost, writing the purchase cost on the box, can, or bottle in which the item is packaged at time of receipt. Alternatively, it is common for restaurants to value the inventories at the latest most recent cost of each item. Regardless of the method used, the same procedure should be followed each accounting period.

At the end of the accounting period, marketable securities should be reported at their fair market value.

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Investments that are more permanent in nature should be recorded in the investments account. Prepaid expenses. Generally, prepaid items are amortized spread over on a straight-line basis. A writing tool such as an ink pen may be used by a clerical employee for more than a year. However, it would not be recognized as a fixed asset because its cost was insignificant. Instead, fixed assets include such items as land, buildings, furniture and fixtures, equipment, and leasehold improvements.

Fixed Assets. This account is used for recording the purchase of land used immediately by the restaurant. Land purchased for future use or as an investment should be shown on the balance sheet as an LAND The cost of land used investment. As well, costs of related to the purchase, clearing or otherwise permanently improving the land and costs incurred to permaafter purchase are part of this account. Cash receipts nently improve the land, from materials salvaged in clearing the land, if any, less any cash generated should be subtracted from the cost of the land.

When from materials salvaged from the land. Purchases of buildings used in the business should be recorded in these accounts with a separate account for each building. When land and buildings are acquired for a single amount, the purchase price must be divided.