staff food expenses

This query is : Resolved

Kumar Gaurav (Querist)
Follow

28 August 2016 hi experts while auditin of one of our client from hotel industry we found that they are providing free food to its staff on daily basis. around to 30 to 40 employees but no accounting for such expenses. what can be the reason? and on what basis cost should be calculated and booked in books? pls explain the same in detail. regards

Kumar Gaurav

Kumar Gaurav (Querist)
Follow

29 August 2016 Please resolve the query

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

25 July 2025 Hey! Providing free food to staff is pretty common in hotels, but it definitely needs to be accounted for properly. Here’s a detailed explanation of how this works:

---

### Why should staff food expenses be accounted for?

1. **Proper Costing & Profitability Analysis:**
Even if food is given free to staff, it’s still a cost to the business. Not recording it will understate expenses and overstate profits.

2. **Tax Implications:**
Some jurisdictions may treat free staff food as a perquisite or a taxable benefit to employees, so proper accounting helps comply with tax laws.

3. **Internal Controls & Audit Trail:**
Recording these expenses ensures transparency and better management of resources.

---

### How to calculate and record staff food expenses?

1. **Basis for Cost Calculation:**

* Calculate the **actual cost of raw materials/ingredients** used for staff food.
* Include direct costs like spices, vegetables, grains, labor (kitchen staff time spent preparing staff food), and overheads proportionally (utilities, cooking fuel, etc.).
* You can take average cost per meal if detailed calculation is difficult. For example:

$$
\text{Cost per meal} = \frac{\text{Total cost of food ingredients + direct overheads}}{\text{Number of meals prepared}}
$$
* Multiply cost per meal by the number of meals served to staff daily/monthly.

2. **Accounting Treatment:**

* **Debit:** Staff Welfare Expenses / Employee Benefits Expense (or a similar account)
* **Credit:** Inventory (raw materials) / Purchase Account (depending on how materials are accounted)
* If kitchen labor is separately tracked for staff meals, include that in wage expenses or allocate proportionately.

3. **If food is prepared on premises:**

* Treat it as an internal consumption of goods.
* Reduce the inventory of raw materials accordingly and expense it under staff welfare.

---

### Why might the client not be accounting for it?

* Sometimes businesses overlook internal consumption because no cash is leaving the premises, so no invoice or bill is generated.
* Lack of proper internal controls or segregation of duties.
* Not aware of the need to capture internal consumption as expenses.

---

### Summary:

| Aspect | Suggestion |
| ---------------- | ---------------------------------------------------- |
| Cost basis | Actual cost of ingredients + proportionate overheads |
| Accounting entry | Dr Staff Welfare Expense / Employee Benefits |
| | Cr Raw Material Inventory / Purchase Account |
| Importance | Accurate costing, tax compliance, audit transparency |

---

If you want, I can help draft a sample accounting entry or a simple costing sheet template for this. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now