How Do I Keep an Income Statement for a Restaurant?

Peter Hann

One feature of a restaurant is that, despite a general increase in credit card use, many payments still are made in cash. When earnings are received in cash, it is important to ensure that they are properly recorded. The relevant staff should, therefore, have strict procedures about use of the cash register, recording cash income and transferring the figures from the books of first entry into the main accounting records. It normally is good practice to ensure that all cash earnings are banked directly and that no cash payments for expense items are made from cash receipts before they are paid into the bank. When setting up procedures for recording income and expenses and preparing the income statement for a restaurant, the owners or managers of the business should recognize that this type of business often is scrutinized closely by taxing authorities.

A waitress serving a customer.
A waitress serving a customer.

It is easy for tax officials to estimate a restaurant's earning, simply by dining at the restaurant and looking at the number of customers present on various nights of the week. An income statement for a restaurant that is sent to taxing authorities should, therefore, be prepared very carefully with supporting records and documents that can be produced if the income statement is challenged. Books and records from which the income statement was compiled should be retained for a number of years, in case of a tax investigation.

A restaurant.
A restaurant.

Aside from the food in a restaurant, the atmosphere created by lighting, false ceilings, decorative walls and other fixtures and fittings is important. Most of this qualifies as capital expenditure and should not appear in the income statement for a restaurant. The business must be very clear about the difference between capital and revenue expenditure. Capital expenditure cannot be included as an expense in the profit and loss statement but may be eligible for tax allowances that can be deducted from the profit for tax purposes. The accounting treatment of any indirect taxes such as sales tax also should be reviewed.

Payments to seasonal and casual workers should be strictly recorded as wages in the income statement for a restaurant, and tax regulations must be respected in the case of casual staff. When the staff serving at tables receive cash tips directly from customers, these normally are considered income of the staff member and should not be included in the income statement for a restaurant. Depending on the tax regulations in the country where the restaurant is located, individual staff members may be responsible for declaring these payments on their own tax returns, though the restaurant will have tax responsibilities if the tips are pooled and divided among staff.

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