Why Your Restaurant Should Use a Four Week Accounting Period
A weekly cycle is a restaurants natural business cycle. Generally, the weekends are the busiest sales days, and inventory is usually lowest on Sunday night (Monday morning). Inventory is counted weekly. So it makes sense that the accounting period should follow the natural business cycle.
How does a Four Week Accounting Cycle work?
A calendar year can be broken down into 13 – four week periods. Thus, you will have a 13 a period year (vs. a 12 period year with a monthly accounting system). With a 13 period year, holidays fall into the same week of the same period every year. With a monthly accounting system, your period can end any day of the week, and holidays can fall into different weeks in the same month of different years.
What are the benefits of a Four Week Accounting Period?
What about expenses that are paid monthly?
To account for expenses that are paid monthly, report 11/12ths of each monthly payment as an expense, and place the remaining 1/12th into a prepaid account. Then once a year the balance in the prepaid accounts are expensed into period 13.
What about the income tax return?
The tax law allows businesses to elect to use a 52-53-week tax year if they keep their books and records and report their income and expenses on that basis. If you make this election, your 52-53-week tax year must always end on the same day of the week. This means that your tax year end will usually be the Sunday closest to December 31st, not December 31st (unless December 31 happens to be a Sunday).
What about banks that require quarterly financial statements?
Banks that require quarterly financial statements will generally accept quarterly financial statements based on a 13 week quarter.
If most of the restaurant industry uses the Four Week Accounting Period, why did my accountant set me up on a monthly accounting period?
There is an old saying that when you’re a hammer, everything looks like a nail. Accountants that are not familiar with the restaurant industry are usually not familiar with the four week accounting period. So they set up their clients with what they know, the monthly accounting period.