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Accounting treatment for cafe restaurant
IF THE RESTAURANT OWNER DOES NOT WANT TO CHANGE MEAL COST AND RECOVER IT FROM OTHERS, IT IS A LOSS. IF THE OWNER WANTS TO RECOVER IT BY MARKING UP MEAL PRICE, YOU CAN INCREASE THE SALES VALUE BY ONE WATER BOTTLE SO THAT COGS WILL GIVE THE SAME RESULT. SUPPOSING WATER BOTTLE COST IS 10, MEALS IS 100, COGS IS 70, THEN
SALES 100
COGS 70
LOSS 10
GP 20
OR
SALES 110
COGS 70
LOSS 10
GROSS PROFIT 30
30 IS THE USUAL PROFIT PER MEALS
trading account is before gross profit. the title can be Distribution expenses.
Free samples also can be included into distribution expenses. since we cant mention customer demanded, we use that heading
If it is AS, it is advertisement expenses. I studied it as Distribution and marketing or advertising expenses.
Advertisement expenses a/c
To Purchases a/c
and
closing inventory is written off to COGS as per cost or nrv basis.
If the water bottle is 10, and you sell it for 12, 10 must be subtracted from closing inventory and a loss of 12 rs must be subtracted from sales. I hope you got the picture. This is a good concept to understand adjusting.
Sales - 12
Distribution expenses - 10
Closing inventory - 10
Loss is 2 rs
Unfortunately, there is no double entry for sales and inventory as both credit and hence reconciled.
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