Restaurant Accounting – 4 Week Reporting Cycle

The challenge:

1. The problem is that there are different numbers of days in every month. Some months have 30 days, some have 31 days, and February has either 28 or 29 days.
2. For most restaurants, the bulk of their sales occur on weekends. So if a month has an extra weekend, it hard to compare financial results with that of a month with only 4 weekends.

The Solution:

4 Week reporting cycles – This cycle consists of 13 accounting periods of 4 weeks (or 28-day months) instead of the typical 12 calendar months. This compliments the weekly cycles used in most restaurants for other purposes and makes comparisons of financial performance from month to month more useful.

The advantages-

1. Better comparability of financial performance – On a four-week cycle, every income statement reflects the sales and expenses for four Mondays, four Tuesdays and so on. This makes it much more useful in comparing current numbers with prior periods and, the same period last year. While this might not be important for every business, it’s critical for restaurants because of the large volume of sales that typically occur on weekends.
2. Better inventory management – When a month ends on a busy night such as a Friday or Saturday, employees are tired and the last thing they want to do is a full inventory count. Shortcuts maybe taken, resulting in a less accurate physical inventory. In a four-week cycle companies may choose to end their week on a Sunday or Monday which are generally slower and gives the employees enough time to take an accurate physical inventory count.
3. Synchronizes the P&L with payroll preparation – Restaurants pay their employees on a bi-weekly basis and must accrue two or three extra days of payroll if they have monthly financial statements. However, the four-week cycle eliminates the need to accrue payroll when the pay period is bi-weekly.
4. Helps prepare the weekly report – Some operators want to calculate their prime cost on weekly basis. The four-week cycle makes it a lot easier to generate this report.

The disadvantages –

1. Using a four-week reporting cycle entail 13 periods a year versus 12 monthly periods. Thirteen 4-week periods equate to 364 days, a day short of the 365-day year.
2. Synchronization with bank statements – The bank statements are generated on a calendar month cycle so one may have to choose to reconcile the bank according to the 4-week cycle. However, this is not mandatory and doesn’t affect reporting in anyway.
3. Recurring and monthly expenses like Rent, Utilities are all billed and paid on a calendar month basis. If a restaurant is following a 4-week cycle, they will have to appropriation the expenses according to the cycle else the last period will not cover these expenses at all.
4. Payment of Sales Tax – Whether you have a 4-week cycle or not, sales tax will have to be paid monthly or quarterly. One must be careful to generate the monthly report to determine the sales tax payable amount.

Fruxient Accounting is a Accounting firm specializing in Restaurant Accounting for Multi-Unit Franchisees of QSRs and Fast Casual Formats.We have been providing bookkeeping services since 2015. Our superior and integrated processes along with deep understanding of Restaurant accounting enables us to delight Restaurant owners by providing comprehensive accounting and strategic services. We would love to hear from you. Contact us for your accounting needs…..