Cash Receipts


In order to maintain accurate and efficient financial statements, an operator should establish a minimum of four cash accounts.

1) An operating checking account.
2) A payroll account.
3) A money market account (used to hold sales taxes).
4) A credit card account to collect credit card funds (which should be transferred to the checking account weekly). The interest over a 12-month period can accumulate into thousands of dollars.

Since credit cards make up a significant amount of a restaurant's income(in some cases over 90%), an operator should make sure credit card sales are tracked closely. A cash receipts journal should be developed and maintained. The cash receipts journal thoroughly tracks credit card funds and ensures the restaurant receives the money from the credit card company.

Credit card companies process charges for a fee between 1.0% to 3.5%. In addition to charging a processing fee, a processing company will charge a transaction fee (anywhere from $.01 to $.05 per transaction). A separate schedule should be kept for each type of card, i.e. American Express, other credit cards and discount cards (if accepted). Let's look at the cash receipts journal for Gary's Tavern. It shows the outstanding credit card receivables, the date collected, the credit card charges and the net cash wire transferred to the bank. This information comes from the transmittals sent by the credit card company. The entry for the first week for Gary's Tavern is as follows (this entry can be booked daily, weekly or monthly):

In
Out
Cash-Checking
$21,174.50
Credit Card Charges (Expense)
621.18
Credit Card Receivable
________
$21,795.68
Total
$21,795.68
$21,795.68

To book collection of credit cards.

GARY'S TAVERN

CASH RECEIPTS AMERICAN EXPRESS

OCTOBER, 20XX

AMEX
credit cd
Net
Date
REC
cgs
DEPOSIT
1-Oct 1,573.00 44.83 1,528.17
2-Oct 3,208.01 91.43 3,116.59
3-Oct 3,226.28 91.95 3,134.33
4-Oct 3,290.80 93.79 3,197.01
5-Oct 3,491.62 99.51 3,392.11
6-Oct 3,423.75 97.58 3,326.17
7-Oct 3,582.22 102.09 3,480.13
SUBTOTAL 21,795.68 621.18 21,174.50
8-Oct 3,146.00 89.66 3,056.33
9-Oct 6,416.03 182.86 6,233.17
10-Oct 6,452.55 183.90 6,268.65
11-Oct 6,581.60 187.58 6,394.03
12-Oct 6,983.23 199.02 6,784.21
13-Oct 6,847.50 195.15 6,652.34
14-Oct 7,164.45 204.19 6,960.26
SUBTOTAL 43,591.36 1242.35 42,349.00
15-Oct 1,980.00 56.43 1,923.57
16-Oct 2,100.00 59.85 2,040.15
17-Oct 2,200.00 62.70 2,137.30
18-Oct 3,000.00 85.50 2,914.50
19-Oct 1,500.00 42.75 1,457.25
20-Oct 2,210.00 62.99 2,147.02
21-Oct 3,190.00 90.92 3,099.09
SUBTOTAL 16,180.00 461.13 15,718.87
22-Oct 3,960.00 112.86 3,847.14
23-Oct 4,200.00 119.70 4,080.30
24-Oct 4,400.00 125.40 4,274.60
25-Oct 6,000.00 171.00 5,829.00
26-Oct 3,000.00 85.50 2,914.50
27-Oct 4,420.00 125.97 4,294.03
28-Oct 6,380.00 181.83 6,198.17
SUBTOTAL 32,360.00 922.26 31,437.74
29-Oct 7,920.00
30-Oct 8,400.00
31-Oct 8,800.00
SUBTOTAL 25,120.00 0.00 0.00
139,047.03 3246.92 110,680.11

The transmittal form from the credit card companies must match the sales journal to ensure the restaurant receives the money it is owed. Any uncollected credit card receivables at the end of the month will remain open on the cash receipts journal. The total of open receivables must match the credit card receivables on the Balance Sheet. This is another important and effective control.

Taking a look at Gary's Tavern, the last three days of the month have zero for deposits. This is because Gary's Tavern has not received the money yet. They will receive the money in December. The balance of $25,120 agrees to the American Express receivable on the Balance Sheet.

Bookkeeper Notes

Tracking the cash balance daily with the accounting package is easy so long as it is maintained timely. Everyday, enter the transmittal in the accounting program as follows:

IN
OUT
Cash - Checking
$1,528.17
Credit Card charges
44.83
Credit Card Rec.
_______
$1,573.00
Total
1,573.00
$1,573.00

To book credit card $$ received on October 1

This information comes right off the transmittal. The operator should make sure the numbers match with the cash receipts journal and the sales journal. When the sales entry is booked, the balance in the credit card receivable account is updated and should agree to the receivables journal.

Charge backs

Sometimes a customer will dispute credit card charges resulting in a non-payment by the credit card company. If this occurs, reverse the sale, as well as the sales tax and the receivable. After all, an operator should not have to pay sales tax if he or she never collects the money.For example, if a guest charges the restaurant back for a $100.00 meal, (the tax being 8.25% in New York) the following entry should be booked:

Debit
Credit
Sales (Food, Wine, Bev, etc.)
$100.00
Sales taxes Payable
8.25
Credit Card Receivable
_____
$ 108.25
Total
$108.25
$ 108.25

The restaurateur can reduce the sales tax liability in the month the charge back occurs. The fact that the sale took place a month earlier does not matter. The adjustment will be reflected in the quarterly sales tax return. Guests are not supposed to be able to charge back the tip. However, sometimes the credit card companies charge back the tip anyway. This matter should be responded to quickly or else the operator might risk losing that money.

Discount Cards

"I'd gladly pay you Tuesday for a hamburger today."

Wimpy from Popeye

Discount card companies buy meals and beverages up-front for a steep discount (in most cases, a fifty percent discount). On paper, these deals sound too good to turn down. However, if the restaurant is full, the operator should avoid discount cards.

If a company gives you $10,000 today in exchange for $20,000 in meals over time, it looks like a good deal on paper. Assuming the business runs a cost of goods sold percentage of 30%, the $10,000 only costs $6,000 to pay back. The numbers translate as follows:

Sales $ 20,000
Cost %
x 30%
Total Cost
$ 6,000
$$$ You got
$ 10,000
It cost you
(6,000)
Profit
$ 4,000

When factoring in the cost of labor (30% to 35% of sales), an operator may have cost himself or herself more money than it is worth. Adding a 30% labor cost to the above example, translates into another $6,000 in costs. The result is a net loss of $2,000. Even worse, cash flow would be affected and old customers that paid full price would start using the card.

Taking all of this into consideration, an operator should be cautious when contemplating discount cards. Some of our clients decide to accept these cards after evaluating the pros and cons. It is hard to turn down tens of thousands of dollars when one may really need the money.If a restaurant accepts discount cards, the operator should monitor sales closely. If discount card sales exceed 15% of total sales, it is a bad deal. The operator should work hard on keeping costs down and consider raising prices to offset the cost of discount cards.

Bookkeeper Notes

Let's say a discount card company is willing to give Gary's Tavern $50,000 today in exchange for $100,000 in meals and beverages. A discount card company expects to redeem their funds over a six-month period. The entry to record the initial funds is as follows:

IN
OUT
Cash
$50,000
Loans Payable
$50,000

To book from a discount company loan.

When discount card customers pay, the restaurant only receives money for tax and tip. The discount card company will apply 50% to food and beverage and the other 50% to the outstanding loan. So, a $1,000.00 check with an additional tax and tip of $250.00 paid by a discount card company would be booked as follows:

In
Out
Discount card receivable
$ 250
Loan payable
500
Discount card promo exp.
500
Food and beverage sales
$1000
Taxes payable
100
Tips payable
____
150
$ 1250
$ 1250

To book discount card sales.

The important thing to keep in mind is that the discount card company sales need to be tracked separately. This will help the operator avoid confusion about what to apply against the loan account. The discount card company will only reimburse the operator for the tax and tip. Fortunately, the discount card company sends monthly statements showing this activity, which makes bookkeeping easier.