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?

1. Better comparability of your numbers.  A four week cycle will always have exactly four weeks that start on a Monday and end on a Sunday.  This means that every P&L will reflect the sales and expenses of four Mondays, four Tuesdays, four Wednesdays, etc.  This makes your operating numbers much more meaningful and useful because they can be compared to a budget or prior periods.
2. Another big advantage is the ability to compare one period to the next to spot trends. With a 13-period system, every period has the exact number of days and weekends. You can then compare apples to apples when you are comparing 2nd period numbers to 3rd period numbers, instead of comparing a 28 day month to a 31 day month.
3. The four-week cycle synchronizes your inventory periods and eliminates the problem of have a month end on a Thursday, Friday or Saturday and having to take inventory after a busy night and when inventories may be at their highest.
4. The four-week cycle also eliminates the problem of having 3 pay periods in your month when your pay period is bi-weekly. Every P&L will reflect 28 days of actual sales and 28 days of actual payroll.  Payroll is easier to account for and will be more accurately reflected in your financial statement.

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.