FINANCE AND ACCOUNTING

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BUSINESS is the activity of
providing goods or services
involving financial, commercial
and industrial aspects with the
primary purpose of gaining a
profit.
 FORMS OF BUSINESS
ORGANIZATION

1. SOLE PROPRIETORSHIP
2. PARTNERSHIP
3. CORPORATION
SOLE POPRIETORSHIP is a
form of business organization
wherein it tends to be a small
service type business or retail
establishments.
PARTNERSHIP is a business
owned and operated by two
or more persons who bind
themselves to contribute
money, property to a
common fund, with the
intention of dividing the
profits among themselves.
CORPORATION is an artificial
being created by law, having
the rights of succession,
owned by stockholders and is
a separate legal entity.
PURPOSES OF BUSINESS
ORGANIZATIONS

1. SERVICE
2. MERCHANDISING
3.MANUFACTURING
1. SERVICE perform services for a fee.
Example: Salons and Spas

2. MERCHANDISING companies purchase goods

that are ready for sale and then sell these to
customers.
Example: Supermarket

3. MANUFACTURING companies buy raw

materials, convert them into products and sell the
product.
Example: Paper Mill Companies
ACCOUNTING
The language of business;
An accepted set of practices to
account for the revenue a
business generates, the
expenses incurred in
generating the revenue, and
reporting and interpreting the
data
ACCOUNTING is the process
of identifying, measuring and
communicating economic
information to permit informed
judgments and decisions by
users of the information.
TWO ACCEPTED METHODS OF
ACCOUNTING
1.ACCRUAL BASIS
2. CASH BASIS

ACCRUAL BASIS the method a

restaurant implements;
The accrual method accounts for sales
and expenses as they are incurred,
and not when the cash changes hands
for the sale of the purchase.
ACCOUNTING PERIOD
The yearly accounting period
for most restaurants is the
calendar year and starts on
January 1 and ends on
December 31 of the same
year.
TRANSACTION is a particular
event that involves the transfer of
something of value between two
entities. Event that takes place in
the life of the business and that
results in an equal exchange of
values.
THE ACCOUNTING EQUATION

ASSETS = LIABILITIES +
OWNERS EQUITY
ASSET is a resource controlled
by the business as a result of
events and from which future
economic benefits are expected
to flow to the enterprise.
Examples: Cash, Accounts
Receivable,
Inventories, Land, Equipment
LIABILITY is a present
obligation of the enterprise
arising from past events, the
settlement of which is
expected to result in an
outflow of resources.
Example: Accounts Payable
EQUITY the residual interest
in the assets of the business
after deducting all the
liabilities.
 PROFIT AND LOSS
STATEMENT
The most commonly used
financial statement a
restaurant owner is
concerned with is known as
the Profit and Loss
Statement (P&L) or
Income Statement.
 PROFIT AND LOSS
STATEMENT
The first part of the P&L shows the
sales categories where revenue is
generated, such as by sales of food,
beer, wine, liquor, soft beverages,
catering, retail sales, and any other
forms of income that the owner would
want to isolate for analysis.
 PROFIT AND LOSS
STATEMENT
The second part of the P&L shows
the expenses associated with
generating the revenue, including
inventories, rent, utilities, payroll,
and other variable and fixed costs
associated with operating the
business. The difference between
revenue and expenses produces
either a pre-tax profit or a loss for
the business.
COST OF SALES OR COST OF GOODS
SOLD (COGS)
The cost of goods sold (COGS) is the
restaurant's cost for the food and
beverage inventories purchased to
generate the sales. It is important to
calculate the percentage of COGS as
well as the dollars spent because it
gives the owner or manager data to
properly analyze these costs and locate
potential problems or areas to improve.
The percentage of COGS is calculated by
dividing the cost by the sales generated
 COST OF SALES OR COST OF
GOODS SOLD (COGS)
[(Beginning inventory
(Value) + Purchases)-
Ending inventory
(Value)]/Sales = % of cost
[(5,000+$3,000) -
4,000]/11,500 = 34.78%
Food cost is 34.78%.
 GROSS PROFIT
The gross profit is
calculated by subtracting
the COGS from the revenue.
 EXPENSES
Expenses associated with operating a
restaurant are many. The P&L breaks these
expenses into categories for easy analysis:

Labor
Labor includes direct management and hourly
payroll expenses, but does not include
associated costs such as benefits, FICA
(otherwise known as social security, and
instituted by the Federal Insurance
Contribution Act), workers' compensation,
unemployment insurance, and other
insurances where applicable by law. These
 EXPENSES
Operational Expenses
Operational expenses are the
daily expenses incurred in
operating a restaurant. They
include items such as linen,
paper products, china,
silverware, glassware, and
office and computer supplies.
 EXPENSES
Occupancy
Occupancy includes rent or mortgage, property
taxes, water and sewer taxes, insurance,
utilities, and repairs. These items are all
included in occupancy costs, because in
analyzing the viability of a site, an owner must
consider all associated costs with that site.
Although the rent might be reasonable, the
combined expenses might put the site out of
financial reach. Other expenses that might
have to be calculated here are percentage rent
and common area maintenance (very common
 EXPENSES
Indirect Expenses
These expenses are usually
associated with other expenses
that have been incurred. These
expenses include associated
payroll expenses, employee
benefits and credit card
discount rates.
 EXPENSES
Management Labor and Bonus
Management is normally paid by salary
and adjusting the schedule to save
labor costs on the bottom line. Control
of this cost is determined annually, so
it is separated from hourly labor. Some
operations pay a bonus based on
performance of the restaurant and
possibly goals set by management.
 EXPENSES
Loan and Lease Payments
Loan and lease payments are
made to banks or leasing
companies. By understanding the
P&L and balance sheets, an owner
can make an informed decision
about the amount of debt the
restaurant can assume. Only the
interest on the loans is tax
deductible.

 DEPRECIATION
Depreciation is a non cash,
tax deductible expense that
allows for the decrease in
usefulness of equipment and
plant assets.
DEPRECIATION FORMULA
= Cost Of Asset
Salvage Value/Useful
Life