In California, restaurants are responsible for paying sales tax to the state on taxable items. What makes a transaction taxable? The answer gets a little complicated for restaurants. The key distinctions are whether the food is hot or cold, and whether it is intended to be consumed on the premises. Here’s how to calculate California restaurant tax:

• Hot food (whether eaten in the restaurant or taken to go or delivered) is taxable
• Cold food is not taxable if taken to go, but is taxable if consumed in the restaurant
• Deliveries are taxable (including the delivery fee) if the food is hot, but not if cold. If the delivery contains both hot and cold items, the tax including the delivery charge should be pro-rated to distinguish between the two. If the delivery also contains non-food articles like alcohol and convenience items, those items are taxable.

An added complication to the above is the 80/80 rule. If 80% or more of your sales are food, and 80% or more of the food sales are taxable, then you owe California food tax (aka sales tax) on 100% of sales.

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Calculating California Restaurant Tax

The California state sales tax (sometimes referred to as the California restaurant tax) is 7.25%. Additional sales tax may be owed to your county and city, depending on your location. County sales tax rates vary widely: Los Angeles charges 2.25% while Orange County assesses only 0.5%.

Tips for Streamlining Your Restaurant Tax Calculation Process

In order to accurately and efficiently collect California restaurant sales tax, you should program your POS system to charge sales tax on those items on which it is due. However, if you’re subject to the 80/80 rule, all your sales are taxable, regardless of whether the food is hot or cold. Beyond your POS, a modern restaurant accounting software suite will save you considerable time when you’re examining the books at tax time. Even the best software requires human oversight, so it’s well worth the expense to hire a tax professional to review your numbers. California sales tax can be complicated, and you want to get it right.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

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The restaurant industry has specific conditions that complicate its taxation such as tipped employees and a bevy of state and local laws that regulate sales and payroll taxes. As a restaurant owner, it’s critical that you, and not just your accountant, understand the taxes on restaurants. This knowledge will enable you to reduce risk to your business and minimize your tax burden. 

IRS Tax Regulations for Restaurant Businesses

In the United States, businesses are taxed differently depending on their legal structure. We’ll explore what that means for sole proprietors, C corps and more in the next section. In short, some types of businesses function as pass-through entities, meaning that taxes on the business are passed on to the owners, who are taxed individually. Other types of businesses must pay taxes as an entity in their own right. 

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The exact IRS Forms needed to properly pay taxes on a restaurant business will depend on the business entity type. 

Individuals and pass through entities will be using some combination of:

• 941, Employer’s Quarterly Federal Tax Return
• 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
• W-2, Wage and Tax Statement
• Schedule C (Form 1040), Profit or Loss from Business
• Schedule C-EZ (Form 1040), Net Profit from Business
• Schedule SE (Form 1040), Self-Employment Tax
• 1040, U.S. Individual Income Tax Return

Partnerships will use:

• 944, Employer’s Annual Federal Tax Return
• 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
• 1065, U.S. Return of Partnership Income
• Schedule E (Form 1040), Supplemental Income and Loss
• Schedule SE (Form 1040), Self-Employment Tax
• 1040-ES, Estimated Tax for Individuals
• 1040, U.S. Individual Income Tax Return

A corporation will engage with:

• 941, Employer’s Quarterly Federal Tax Return
• 940, Employer’s Annual Federal Unemployment (FUTA) Tax return
• Schedule E (Form 1040), Supplemental Income and Loss
• Schedule SE (Form 1040), Self-Employment Tax
• 1120, U.S. Corporation Income Tax Return
• 1120-W Estimated Tax for Corporations

Corporate Taxation by Entity Type

Sole Proprietorships

A sole proprietorship passes on all tax liability to the individual. No corporate tax rate is paid, instead the owner pays personal income tax on all restaurant profits. While this legal structure is the simplest, it limits ownership to a single person (you can’t have partners) and in the event of a tax dispute, full legal liability falls on the individual—there is no legal distinction between personal assets and business assets.

LLCs and Partnerships

An LLC, or Limited Liability Corporation, can be single member or multi-member, meaning it has one owner or multiple owners. In either case, all taxes are passed through to the owners, who are assessed taxes at the individual rate. Partnerships work the same way. Note that for both LLCs and Partnerships the businesses are required for file “informational tax returns” that show their profit and loss for the year. This informational return does not entail actual payment of any taxes it shows as due, rather those are paid individually by the owner(s).

Corporations

Restaurants organized as corporations file a corporate tax return and then separately, all shareholders must pay tax on dividends received. This means Corporate profits are taxed doubly—first at the corporate level, and again when profits are distributed. Despite this disadvantage, many restaurants will choose to operate as a corporation in order to have a large ownership group (i.e. shareholders) and for robust liability protection.

Understanding Restaurant Taxes

Sales Tax

Restaurants are responsible for collecting sales tax on all transactions. This requirement encompasses not just food and beverage sales but also catering, merchandise and space rental income. Your city and state typically set their own sales tax rates, though some jurisdictions are notable for not having any sales tax at all. To properly collect sales tax, research your local laws and set the appropriate rate on your POS to make sales tax application automatic. Retain your transaction records to be prepared in the event of a sales tax audit by local authorities. 

Payroll Tax

Payroll taxes are paid to the government to cover social security, medicare and unemployment tax. Part of payroll tax is the responsibility of the employee (and is deducted by you on their behalf from their paychecks). The other part is paid directly by the employer.

Property Tax

In the event that you own your restaurant’s building and land, you’re responsible for paying property tax. It’s also not uncommon for restaurants that lease their property to have a provision in the lease that makes them responsible for a percentage of property tax. Know your lease terms.

Income Tax

Income tax for restaurants is the same as for any other type of business. Employees are responsible for paying their share of income tax on W-2 Forms. Whether the business itself pays a tax on profits depends on whether its a pass-through entity such as an LLC or partnership. If the business is a corporation, it will need to pay a corporate tax rate on profits. Corporate distributions to owners are then taxed again at the individual level.

Restaurant Taxes on Tips

Tips are taxable income and must be reported as such. There’s space on the W-2 form for exactly this purpose. Tips get no special tax treatment—the tax rate is the same as regular income, and payroll taxes are assessed in the same manner. The only distinction is that employees are responsible for separately tracking and reporting tip income to their employers. If employees neglect to report this income to their employer (and so make it subject to regular payroll tax withholding), they must use Form 4137 to account for the tip income.

Employers are responsible for correctly withholding payroll taxes from employee wages, and paying the appropriate employer share of payroll taxes. As tips are included as part of total employee income, no special provision is necessary. Employers should use Form 941 to report all payroll taxes.

A tax credit is available to refund the amount of employer social security and medicare taxes paid on tip income that exceeds federal and local minimum wages. This is known as the FICA tip credit, which is calculated and paid via IRS form 8846. In short, the tax credit is equal to the amount of tip income per employee above the minimum wage times 7.65%.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Strategies for Restaurant Tax Planning

As this guide to taxes on restaurants has illustrated, there are nuances to the tax treatment of restaurants. Here are some quick tactics to improve your grasp of restaurant taxes:

• It’s well worth the investment to work with a tax professional who can help you reduce your audit risk and maximize your deductions. A local accountant will also know the relevant state, county and city tax laws.
• Retain all records of sales transactions, purchases, and payroll. This information will be crucial in the event that you need to show proof of your accounting figures to the IRS or local tax authorities. 
• Save as much on your taxes as possible by maximizing your deductions. The details of how to go about this should be handled by a professional tax advisor, but the gist is that many of your daily expenses are deductible costs of doing business, and thus can reduce your tax liability. 
• Finally, remember that you’re responsible for paying estimated taxes at regular intervals throughout the year, not just in April. Research your required payment interval and keep to it.

The post Complete Guide on Restaurant Taxes for Managers/Owners appeared first on Restaurant Accounting Services, Inc..

Restaurant tips have their share of mystery surrounding them – but they don’t have to! Since tips are an extra type of payment to servers, bartenders, and other restaurant staff, they’re often regarded as under-the-table income.

But that’s the first mistake usually made when calculating tips. Tips are considered taxable income to the recipient, and must be accounted for accordingly.

Plenty of questions pop up about restaurant tips, including:

• Are tips calculated differently than regular hourly income?
• Are credit card tips taxed on paychecks?
• Do employers pay taxes on tips?
• And many more

RASI, the leader in restaurant accounting software, is here to set the record straight on restaurant tips. Make sure you check out our in-depth article on restaurant tips for helpful info. Let’s get into some specifics to help you fully understand tips!

WATCH THE FULL VIDEO BELOW!

Requirements for Tip Recipients

Here are the three golden rules for any restaurant employee who receives tips:

• Keep a running log of all restaurant tips – daily records are recommended.
• For any month that exceeds $20 in tips, report all cash and credit card tips to restaurant management.
• Report all tip income (including regular income) to the IRS – this ensures the proper tax amount is withheld.

Withholding & Reporting: Requirements for Employers

Employers also have their share of responsibilities. Do employers pay taxes on tips? What about FICA taxes? To ensure IRS compliant withholding requirements, employers should always track:

• Cash and credit card tips for all staff.
• Restaurant tips split between employees – also known as “tip pooling.”
• Monetary value of all non-cash tips.
• Withholding income and Federal Insurance Contributions Act (FICA) taxes on all employee wages – regular income and tips.

In order to account for employee income, it helps if your restaurant has a financial reporting system, which is one of RASI’s core offerings.

What Happens If Employee Taxes Aren’t Paid on Restaurant Tips?

For employees, it’s required by law to pay taxes on all types of restaurant tips (credit card, cash, non-monetary tips). Failure to report and pay could result in a penalty equal to 50% of the FICA taxes on unreported tips. There are circumstances with reasonable cause to show why the taxes weren’t reported to the employer, but it’s best to report everything, all the time – this goes back to keeping regular, accurate tip logs.

Consequences of Failing to Report Taxes for Restaurant Tips — Employers

If employers are always properly closing out financial periods – which includes restaurant tips – they can avoid all the headaches involved with non-compliance.

You might be unaware, but every March, large food & beverage establishments are required to report income from the prior year. This includes all food & beverage consumption, tips, and other information. This is called the Employer’s Annual Information Return of Tip Income and Allocated Tips.  

Given the laws and regulations related to restaurant tips, it’s important for employers and employees to pay taxes on all tips, whether cash, credit card, or non-monetary tips (equivalent cash value).

It’s so important, in fact, that a 2002 U.S Supreme Court case, U.S. v. Fior D’Italia, established the guidelines for tip reporting. In this case, the IRS concluded that cash tip income was considerably under-valued than charge tip income. Bottom line: the restaurant in this case was required to pay the difference. The Supreme Court upheld the IRS findings, something now known as the aggregate estimation method.

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Sign Up with RASI Today!

That’s why your restaurant should have a compliant, accurate, easy-to-use Payroll Reporting system in place. RASI provides this and much more – don’t take chances with the IRS for under-reporting taxes due on restaurant tips. Request a free demo today, or call our experts directly at (720) 826-9900. Thanks for considering RASI for your total restaurant accounting solutions!

The post What Restaurant Owners/Managers Should Know About Tips appeared first on Restaurant Accounting Services, Inc..

What are Employer Tip Responsibilities?

Reporting requirements

The first duty that falls on employers is to record the amount of tips employees receive. This is achieved by collecting regular (at minimum, monthly) reports from all your tipped employees. These reports must contain daily records of tips received, whether in cash, by card, or as distributions of tip pooling. Some wonder how to report credit card tips, specifically. The answer is the same as reporting cash tips — only the daily and monthly tip totals are important.

The employee tip report does not include automatic gratuities, such as those applied to large parties, as those are compulsory payments and do not meet the legal standard to be considered a tip. Auto-gratuities are instead categorized as part of the employee’s regular wages (with all the typical payroll tax withholdings).

Accounting for tip income

The second employer tip responsibility is withholding income tax, Social Security, and Medicare tax on tip income. Taxes are to be deposited with the IRS every quarter via Form 941. If employees fail to report tip income, the employer is not liable for taxes on the unreported tips until they receive a notice and demand from the IRS.

In other words, “are employee tips payable to the IRS?” Tip taxes are payable only when the employer is appropriately notified of the tips by the employee. Accounting for tips in your restaurant payroll is can be complicated but a modern restaurant accounting solution will assist in streamlining the process.

Large employer duties

“Large food or beverage establishments” are employers who, on average, have more than 10 employees working on any given day. These businesses are required to file IRS Form 8027. This form records receipts from food and beverage sales and tips reported to the employer. Note that this reporting requirement applies per location, so quick-service restaurants and other multi-location brands will need to file an 8027 for each restaurant that meets the headcount requirement.

The IRS stipulates for qualifying large employers that tips to employees must be equal to or greater than 8% of gross receipts. If reported tips are below that amount, the employer must distribute them to tipped employees until that measure is reached.

Employee Tip Responsibilities

As mentioned above, employees must keep a record of daily tips and submit that record to their employers monthly or more frequently if requested.

Employees are responsible for reporting tips to IRS as income and paying their share of income tax, Social Security tax, and Medicare tax via Form 1040. Note that, as previously stated, auto-gratuities such as those applied to large parties are not tips and should be treated like regular income. When making their annual tax payments, employees may find they have unreported tip income for which to account.

WATCH THE FULL VIDEO HERE!

How Does Software Aid in Managing Tips?

We have covered the manual requirements of how to record tips in accounting. But operators should be aware that managing this all by hand is suboptimal. Restaurant accounting software is built to handle tip income and will significantly ease the administrative burden of tip income management.

RASI’s accounting solution for restaurants integrates with POS data to record tips directly at the source. This is an immediate win for data accuracy and convenience. It will also calculate the payroll taxes applicable to tip income. Moreover, RASI will generate Form 8027 for the large employers that require it.

How Does Tracking Tips Help a Restaurant?

Tracking tips fulfills reporting and record-keeping requirements from the IRS. As all experienced restaurant operators know, it is far cheaper and less stressful to do it correctly the first time than to contend with penalties and fees down the line when it comes to taxes.

Next, proper accounting for tips in restaurants (ideally through an automated software solution) positions the operator to easily handle tip pooling and service charge distribution, making for happy employees. That same software should be managing your payroll tax calculations as well.

Lastly, proactive managers can use tip reporting as a record of customer satisfaction and server performance. If some employees are disproportionately tipped, try to study their methods and train other servers to take on their traits.

How to Choose Software to Manage Accounting for Tips

There are some minimum requirements for helpful software in this area. Any accounting software you select to assist with tip income reporting should integrate directly with your POS system to eliminate manual and duplicative data entry. The software should also calculate payroll taxes, automating tedious, error-prone tasks. Finally, this should be software that you use daily, with the ability to handle broader financial responsibilities than just tip management.

RASI meets all these requirements and goes beyond them, integrating accounting, compliance, payroll, cash management, treasury solutions, and financial operating metrics. Thousands of restaurant operators across the nation have made RASI their software of choice for restaurant management.

When you sign up with RASI, a dedicated account team will onboard your management staff, configure the software to match your operational flows, and coach your team on how to use the software to set and meet financial goals.

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Contact us today for a free demo!

The post How to Record Tips in Accounting appeared first on Restaurant Accounting Services, Inc..

The American Rescue Plan Act of 2021 (ARPA) is an Emergency Legislative Package to Fund Vaccinations, Provide Immediate, Direct Relief to Families Bearing the Brunt of the COVID-19 Crisis, and Support Struggling Communities. ARPA was signed into law by President Joe Biden on March 11, 2021, and it builds upon the directives of the CARES Act from March of 2020, and the Consolidated Appropriations Act from December of 2020. During this episode of The Tip Share, RASI Compliance Director, Brian Smith, and RASI Director of Client Advisory Services, Sydney Lynn, highlight the various Tax Credits behind ARPA, which could be beneficial for restaurant owners across the nation.

What other Tax Credits besides the Employee Retention Tax credit (ERTC) were enacted by ARPA?

• Cobra Premium Subsidy (new)

How Does The New Cobra Tax Credit Impact A Restaurant Owner?

Under ARPA an employer must pay the cobra premiums for assistance eligible employees under certain circumstances. When an employer is required to pay the Cobra premiums for an assistance eligible employee, the employer is entitled to reimbursement on a dollar-for-dollar basis through a refundable payroll tax credit against employer-paid Medicare taxes. The tax credit will be applied at the end of each quarter on form 941 and will be treated as an overpayment of taxes for the quarter and refunded to the business.

How long are employers entitled to receive a tax credit on their quarterly 941 for paying out Cobra premiums for assistance eligible employees?

ARPA provides 100% Cobra Premium Subsidy for a six-month period only, so employers are eligible for the Tax Credits on their Quarter 2 and Quarter 3 941s, which covers the timeframe of April 1, 2021, through September 30, 2021.

WATCH THE FULL VIDEO BELOW:

EPSL AND PFMLA EXTENSIONS AND EXPANSIONS

The Consolidated Appropriations Act of 2021 extended the Tax Credit only from January 1st, 2021 through March 31st, 2021. Employers are not required to provide leave, but if they do provide employees leave for a qualified reason on a *uniform and equitable basis* (meaning employers can’t just pick and choose who they apply it to), they’re entitled to a Tax Credit.

ARPA has extended the Tax Credit under Emergency Paid Sick Leave (EPSL) and Paid Family Medical Leave (PFMLA) from April 1, 2021, through September 30, 2021. The Tax Credit is still equal to 100% of the eligible wages paid, up to the maximum amount, and the employer paid Payroll Taxes which is now both Social Security and Medicare; with this, there’s a larger credit because there are more taxes involved.

What does the EPSL and PFMLA Expansion actually mean for employers?

ARPA expanded the qualifying reasons for Paid Sick Leave to include seeking or awaiting the results of a COVID-19 test or diagnosis if the employee has been exposed to COVID-19 or the employer requested the test or diagnosis. Additionally, a qualifying reason for Paid Sick Leave now includes receiving a COVID-19 vaccine or recovering from an injury, illness, disability, or medical condition associated with the vaccine. The intention is that allowing employees to get paid to get the vaccine will hopefully encourage people to get the vaccine, and then the employer will get a Tax Credit if they choose to pay.

Are all employers eligible for the tax credits under the EPSL or the paid family Medical Leave Act?

An ineligible employer is a business that is a tax-exempt organization with fewer than 500 employees.

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The post Restaurant Tax Credits Under The American Rescue Plan Act appeared first on Restaurant Accounting Services, Inc..

UPDATE (1/27/21):

The IRS has released new guidance regarding claiming the retroactive ERTC. Unfortunately, the new guidance requires more granular data.  On January 22, 2020 the IRS published guidance that indicated employers claiming the ERTC on Q4 941 for Q1, Q2, Q3, and Q4 can only do so if their PPP Loan was not forgiven.

If your PPP loan was forgiven you can still claim the ERTC. However, the updated IRS guidance requires that: Eligible wages need to be broken up by quarter. Additionally, The Q4 941 can only include eligible wages from Q4 if your PPP loan was forgiven.

Please note that the updated IRS request does not impact the work that you may have already completed as the total credit can still be claimed for 2020. Previously, the IRS guidance allowed that all eligible expenses could be claimed on the Q4 941 (provided your loan was forgiven).

Once again, in order to claim the ERTC for 2020 the eligible wages will need to be broken down into quarterly amounts not to exceed $10,000 in total earnings per employee.

PLEASE NOTE THE FOLLOWING:

• Wages eligible for the ERTC in Q1 of 2020 (Only wages paid between March 13 and March 31 qualify in Q1) were reported on Q2 941.
• Only Q2 and Q3 941s may need to be amended provided those quarters contained the wages eligible for the ERTC.

ORIGINAL POST (1/11/21):

• Podcast
• Video

With the passage of the Consolidated Appropriations Act of 2021, which contained another round of COVID stimulus for businesses, PPP loan recipients are now eligible to claim the Employee Retention Tax Credit (ERTC) retroactively for eligible wages paid in 2020, even if the PPP loan has been or will be 100% forgiven.

A PPP recipient may elect (the Treasury is tasked with publishing guidance on how a business would elect this option) to report eligible wages paid between March 13, 2020 and October 31, 2020 on the business’ Q4 941 along with eligible wages paid between November 1, 2020 and December 31, 2020 to claim the Employee Retention Tax Credit.

QUESTION #7

WHAT ARE ELIGIBLE GROUP HEALTH PLAN EXPENSES?

Group health plan premiums, as defined by IRC §5000(b)(1), paid by the employer—not deducted from employees’ paychecks—that can be allocated to wages eligible for the ERTC.

This would include Medical, Dental, and Vision premiums paid by the employer. . . if the employee’s portion is or would be a pre-tax deduction under a §125 benefits plan.

QUESTION #8

WHAT IS THE TAX CREDIT AMOUNT?

50% of eligible wages, so a maximum of $5,000 per employee (In 2020, $10,000 is the maximum amount of eligible wages per employee including eligible group health plan expenses).

QUESTION #9

HOW WILL THE CREDIT BE CLAIMED?

As a refund on the 2020 Q4 Form 941, which is due February 1, 2021.

QUESTION #10

ARE WAGES USED TO CLAIM THE ERTC DEDUCTIBLE ON MY FEDERAL INCOME TAX RETURN?

No, the wages equal to the amount of the tax credit are not a deductible expense on your federal tax return.

QUESTION #11

WHEN WILL THE REFUND BE RECEIVED?

The IRS must process the 941 and mail out the refund check.

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In this episode of The Tip Share, RASI New Business Strategist, Dave Downs takes a moment to sit down with RASI Squad Leads and seasoned accountants, Dave Holzer and Jesse Brown, to provide insight and expertise on the top 5 areas of focus to keep the upcoming period goal-oriented, based on current results.

5 Must-Assess Areas For a Successful Restaurant Period End Review

There are 5 main areas where restaurants should place their focus at the close of a period:

• COGS: Your food and pour cost
• Labor: Your payroll
• Expenses: Items below-the-line (items on the P&L that do not directly impact profit)
• Analysis: Specific categorical focuses (Balance Sheet etc.)
• Reconciliation: Determining where items are coded, what items need further review, and what adjustments you need to make

“COGS, Labor, Expenses, Analysis, Reconciliation: CLEAR  – If you want to get a CLEAR financial picture, it’s imperative to review these areas at the end of each period!”

Considerations When Evaluating COGS & Labor At Period End

Cost of Goods (or to some, Cost Of Sales) is defined as the carrying value of goods sold during a particular period. In a restaurant, COGS is where the managers can make the most impact. It’s also where the day-to-day focus is often driven. When analyzing COGS you’re looking at your big-ticket items – anything that’s significant in getting food to the customer. It’s critical to the health and survival of all restaurants that you understand your COGS and how to manage them accurately.

In addition to reviewing COGS at the end of a period, operators need to review their Labor expenses as well. Restaurants are among the most labor-intensive industries and labor is one of the largest line items on your Balance Sheet. Keeping control of labor expenses can be one of the best ways to increase profit and contribute to the success of your business.

When reviewing COGS & Labor, best practices include:

• Review Period Trends: Analyze the last 3 periods, look at your overall food and labor costs, and see if you can identify any trends.
• Review Historical Trends: Analyze YOY trends to highlight areas of opportunity. Ex) is there an opportunity for vendor price negotiations or product discounts?

Furthermore, it’s critical to understand what was taking place at the time of your trend comparisons. This will help paint the picture in the long run so you can understand if you’re comparing apples to apples, or apples to oranges.

The best way to alleviate any outliers is to always look at your trends in the scope of a Budget Versus Actual in the Period End Review, and even more frequently throughout the course of each week so that every analysis is tied directly back to your Budget.

Dissecting Below-The-Line Costs On The P&L

Useful Tips To Review A Restaurant Comp Analysis

Every restaurant’s accountant should have a standard set of GL’s (general Ledger accounts) where comps can be separated out into more detail. This provides a more transparent picture of why or when certain items are getting comped.

This can range anywhere from the following:

• Employee Discount
• Alcohol Employee Discount
• VIP Promo
• Alcohol VIP promo

Analyzing your comps more granularly sets you up for greater success in the bigger picture. This is especially applicable in relation to compliance and tax implications (use tax etc.).

WATCH THE FULL VIDEO BELOW:

Top 3 Items On The Balance Sheet That A Restaurant Owner Should Analyze During A Period End Review

The Balance Sheet is often the statement that gets overlooked; it’s not your income, it’s not your COGS, it’s simply not as entertaining to look at. However, the reality is that a restaurant Balance Sheet is the most important financial statement an operator has. If the Balance Sheet is not accurate, then the P&L is inaccurate as well. Therefore, there is no true clear picture of where your actual Net Profit lies.

The main accounts you need to review include:

• Petty Cash: Every restaurant calls this something different (safe, petty, banks, house bank). Petty cash represents the amount of cash you have in your restaurant, NOT including your cash collected for that day’s deposits. You need to have daily or shift-ly counts of this amount to ensure accountability, prevent fraud and inaccurate accounting.
• Credit Card Tips Payable: If you’re paying out Credit Card tips collected on paychecks, then the total amount of tips collected for that pay period will show as a credit balance in your liabilities. At the time of processing payroll, that total amount collected should then be paid out in full to your employees. If you have any remaining balance, this means you have either under or overpaid tips to employees. This is a red flag during audits. It’s critical to reconcile CC Tips Payable to the penny with every payroll.
• Operating Equipment: If you have a large expense, like a new piece of kitchen equipment, your CPA may suggest you treat this as a capitalized cost and record it as a long-term asset on your Balance Sheet. This means the expense does not hit your P&L statement as an expense within the same period that you purchased it.  Set up a depreciation schedule to incur the expense spread out over future periods.

Why Bank Reconciliations Are Critical To A Period End Review

If you can’t verify that the information you have is accurate, there’s no point in reviewing the information in the first place. This is where reconciliations come into play. When reconciling accounts, this needs to go beyond the Operating Accounts. Your bank reconciliation can be thought of as your grade. Use the number of reconciliation questions you have as a learning tool to understand where your areas of opportunity lie.

A few areas to reconcile are the following:

• Ensure cash paid-outs are recorded properly
• Verify expenses paid via credit card are recorded correctly
• Confirm loan balances are accurate

Reconciling and reviewing your financial statements at the end of every period ensures your finger is on the financial pulse of your business. It allows you to identify any accounts that need adjusting and make said adjustments to your financials; ultimately, this enables you to pivot when needed!

LISTEN TO THE FULL PODCAST EPISODE BELOW!!

The post How Period End Reviews Can Set Your Restaurant Up For Financial Success appeared first on Restaurant Accounting Services, Inc..