The bars and restaurants are mostly cash businesses that generate most of their income from the sale of perishable goods. These companies have an inventory and changing it often along with the options in the menu to meet the demands of its customers. Both the cash and the exercise of the accounting methods are ideal methods in the accounts of these companies. However, the needs, preferences, online bookkeeping services and accounting operations are determining which accounting method is best for every business in particular.
Cash accounting method
The method of accounting through the box or cash payments, is the method of accounting most commonly selected in the bars and restaurants. This method allows companies to record revenues generated when you receive payments in cash for services rendered or as payment for costs and expenses. The activities are recorded when cash is changed. As most of the bars and restaurants require customers to pay for their food, liquor and services immediately after receiving them, the criterion of box becomes the ideal accounting method.
Although cash accounting is the easiest method to carry out the accounting, it is not necessarily the most accurate method to determine the activity. Cash accounting does not recognize delays in payments of payment plans and credit accounts. For example, at the discretion of the box accounting registry, restaurant records deliveries to its suppliers only when you pay for them. However, many restaurants have delivery accounts with its suppliers that allow restaurants pay their deliveries, weeks and even months, once they have been received. Seeing the accounting activity, cash accounting will show that the restaurant experience large expenses on regular deliveries when, in fact, deliveries are smaller and occur regularly.
Accumulation method of accounting
Unlike cash accounting, the accounting method of accumulation records the transactions to occur. Revenues and expenses are recorded at the time of the transaction, regardless of the time cash is exchanged or is made the payments. With this method, the activity shows a more accurate perspective on how expenses are incurred and revenues generated. This method allows restaurants to achieve a clearer understanding of the comparison of income with respect to costs.
The bars and restaurants that generate less than $1 million per year have the option to choose between cash accounting and the cumulative accounting system. For these companies, there is no right or wrong decisions.However, the U.S. internal revenue service requires all businesses, including bars and restaurants, to use cumulative accounting method when the company generates more than $1 million per year. If a company chooses to use the cash accounting method, requires the filling in the form from the IRS 3115 change of accounting method and wait for a response from the IRS before officially changed to the cash accounting method.