Edit

It's always something

You've switched to 4-week accounting periods. You're using the Uniform System of Accounts for Restaurants. You're even taking inventories and calculating prime costs on a weekly basis. So why do the other "numbers" on your P&L still look screwy?

If you're like most operators, your bookkeeper often has to "decode" your P&Ls, because there always seems to be something distorting the results. You know, those nonrecurring or unusually large expenditures, like the deposit for the insurance policy, next quarter's advertising bill, or 6 months' worth of supplies you got that great deal on. Just a single item like this, expensed in one period, can turn a modest profit into a huge loss, and make your managers crazy...especially if their bonuses are on the line!

When preparing periodic budgets, you probably project annual amounts for big-ticket items and divide by the total number of accounting periods (13 for 4-week accounting periods; 12 for 4-4-5 or monthly). In practice, however, instead of being spread out over the periods to which they apply, these items are being expensed as they're paid for or invoiced. When this happens, you can't compare actual performance to budget-or to last period-without a translation.

One way to help match income and expenses better is to adopt the prepaid expenses system. It works like this: When something is paid for or billed in advance, the total amount is posted to an asset account (e.g., "Prepaid Expenses"), rather than an expense account. During each accounting period, the amount that applies to that period is posted via journal entry to the appropriate expense account, with the prepaid account being reduced by that same amount. This continues each period until the balance in "Prepaid Expenses" is fully depleted.

Download our prepaid expenses system workbook. Choose from a version for businesses with 12 accounting periods and another one for businesses with 13 accounting periods . There's a worksheet for calculating how much of an item to expense each period and in which periods to allocate the amounts. This data is then transferred to a spreadsheet, where 30 prepaid items can be tracked using up to 8 different expense accounts. To make things easier, the spreadsheet also supplies the periodic journal entries. After implementing the prepaid expenses system, you'll see fewer expenses fluctuations and discrepancies when comparing periodic P&Ls with the budget and previous periods. But there's one more thing I suggest you do, especially if you've adopted 4-week accounting periods, and that is to estimate expenses accrued but unbilled at period-end (utilities, telephone, etc.).

Trending

More from our partners