Restaurant owners use the income statement to determine if they are making or losing money during a given period of time. The income statement is sometimes called the profit and loss statement (P&L for short). It is usually created on a monthly basis so owners can see how their restaurant is doing each month.
The income statement contains the following types of information which helps determine the performance of a restaurant during the reporting period:
- The volume of sales (revenues) during the period
- The amount of business expenses that was paid during the period
- The difference between the sales and the expenses that either results in a profit or a loss for the restaurant in that period.
The following is a template of a typical income statement for a restaurant. It is helpful to learn how to read an income statement, so you can keep track of your restaurant’s profitability.
|For the period of (beginning date) to (ending date)||$|
|Cost of Sales|
|Total Cost of Sales|
|Direct Payroll (wages, salary etc)|
|Indirect payroll (employee benefits, taxes, etc.)|
|Maintenance and repairs|
|Advertising and marketing|
Gross profit is the difference between sales and cost of sales. It is the profit you make before you have to pay all of your major expenses, such as rent and payroll.
Notice that the expenses are categorized into two types:
- The cost of sales refers to the cost of providing the food to the customer, which include the cost of the food and drink. If you provide napkins or wares for your customers, it may be included in this cost as well. Putting this expense in a separate section helps you keep track of food and inventory costs.
- The other expenses are everything you need to pay for, including payroll, rent, utilities interest, and taxes. Although you don’t write a check for depreciation of your assets (equipment, building, etc.), it is considered an expense and should be accounted for in your income statement.
Not all businesses break down their expenses this way. For restaurants, this is a good way to separate the different types of expenses so you can keep track of them in major categories.
Net profit is the difference between gross profit and total expenses, and can be a positive or a negative number. If the net profit is positive, your restaurant produced a profit during the reporting period. If it is negative, you lost some money during the reporting period.