Inventory

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Prime Costs Controls

It is essential to take monthly inventories and cost everything out. Inventory should be organized by the following categories: Food, Wine, Liquor, Beer, and Other Beverages. The more detailed the inventory list, the easier it will be to calculate important ratios such as food and wine costs. If an operator does not organize his or her inventory properly, it will be harder to calculate accurate ratios and identify problem areas.

Bookkeeper Notes

The adjustment can be made directly to the purchase account and the Balance Sheet account. For example, if the food inventory increases by $2,000.00, the entry is as follows:

		Debit	Credit
	Food Inventory	$2,000.00
	Food Purchases		$2,000.00
	To record increase in ending food inventory.

In the above example, the profit would increase by $2,000.00. Some restaurants like to show beginning and ending inventory on the Income Statement. This creates two additional journal entries. Using the above example:

	Beginning Food Inventory	$10,000.00
	Ending Food Inventory	$12,000.00
	Purchases	$20,000.00
The entries on the Income Statement are as follows:
		Debit	Credit
02/01	Beg Inventory Income Statement	$10,000.00
	Inventory Balance Sheet		$10,000.00
	To move inventory from B/S to I/S
		Debit	Credit
02/28	Inventory Balance Sheet	$12,000.00
	Ending Inventory Income Statement		$12,000.00
To book Ending Inventory.

The month-to-date entries are fine. The inventory and profit for February would increase by $2,000.00.  However, the year-to-date numbers would be incorrect. To correct the year-to-date numbers, reverse out the prior monthís activity.  For January 31, book the following entry:

		Debit	Credit
01/31	End Inventory Income Statement	$10,000.00
	Beg Inventory Balance Sheet		$10,000.00

This entry resets the year-to-date (YTD) beginning inventory (Beg Inv(I/S)) to the 01/01 date and the Ending Inventory (End Inv) to the correct ending inventory.

Inventory count sheets should be maintained by month. Excel is an excellent tool for this procedure. All you have to do is count your inventory, verify prices and key it in the spreadsheet. When taking inventory, remember one point off food cost is a lot of money. Additionally, if the staff knows a serious count is being taken, theft becomes that much harder.

If food cost or beverage cost is high, take inventories weekly and adjust the weekly flash reports. Also, cut back the amount of inventory on hand. With less goods in house, the kitchen will run more efficiently.

Table of Contents
Prime Costs Controls