![]() Purchases are goods purchased by the restaurant and are recorded at cost. To better understand this, let’s take a look at an example. Only when it is served to the customer’s table, is when it becomes your COGS. Until the time you sell it, it serves as your inventory, an asset on your balance sheet. When you purchase these foods in advance, it is not immediately an expense. If you have some storage space in your restaurant kitchen, chances are high that you purchase your food for the restaurant in bulk.īe it for economies of scale, easy logistics, buying power, ease of production or whatever reason. Now that you understand the concept and the differences between the three, we take a look at it using an actual accounting example to put this newfound restaurant information into action. Do not worry, we will dive into the math here shortly and it will all make clear sense. His inventory will be the remaining 200 boxes, calculated at this cost, while the COGS will be the cost of 400 boxes (100 boxes + 500 boxes – 200 boxes = 400 boxes). He started the year with 100 boxes, and during the year purchased 500, and at the end of the year was left with 200 boxes. Think of a retailer that sells only cookie boxes. Most restaurant owners fail to make the final step between purchases and the cost of goods sold (as this requires a week-end or month-end adjustment). While inventory is reported on the balance sheet, COGS and purchases are recorded on the income statement.Īgain, this is where it gets a bit confusing, and the difference between COGS and purchases is crucial. Purchases not used, later become inventory, those that are used during the time period become the cost of goods sold. The nuance here is that purchases do not always equate exactly to the cost of goods sold, as certain items remain unused from period to period. For restaurants, these are the purchases that will be used in the final product, such as the restaurant plate or glass of wine. Purchases – Purchases are the items bought from vendors that will be sold to customers. This is easiest calculated over a weekly or monthly time period. For restaurants, this is the true cost associated with what goes on the plate or in the cocktail that is served. ![]() These are the items that will either be sold by themselves or combined with other ingredients to produce the finished product sold to customers.Ĭost of Goods Sold (COGS) – The cost of goods sold is the cost of the merchandise that was already sold to the customers. To understand better, specifically for restaurants, this is the meat sitting on the line, frozen food in the freezer, fresh produce in the walk-in, beer in the kegs, liquor on the liquor cabinet, soda bags yet to be used and so on. Inventory – Inventory is the products, such as food and beverages, that has been bought by the restaurant and not yet sold to the customers.
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