Restaurant accounting is usually straightforward. A product or service is sold and paid for on delivery and recorded as revenue. However, there are occasions in the restaurant business when accounting transactions aren't simple cash flow, and you end up with deferred revenue.
Regular revenue is revenue restaurants recognize on sales for the day from food, alcohol and services provided. Deferred revenue is money restaurants collect from a customer without providing any goods or services.
In the restaurant industry, most of the services and products sold on a day-to-day basis is considered revenue, but there are occasions when sales would be recorded as deferred revenue. Here are a few.
Catering
Catering, banquets, holiday parties and corporate events can be big business for restaurants. These events usually come with a contract requiring an advance deposit.
Often restaurants will request 50% down and 50% when the event is complete. In those situations, any money collected upfront before the event is considered deferred revenue since payment was collected before the service or product was provided.
Loyalty programs – not deferred until it is
Restaurant loyalty programs can be confusing. Generally, these programs are liabilities.
Customers in the loyalty program spend money to earn points which can be used to redeem a free product. Whether it’s ultimately determined to be a liability or deferred revenue depends on the type of accounting processes you use.
For example, customers receive one point with a value of $1 for every $100 they spend. As a customer spends $100 on food, restaurants recognize $99 of that as revenue and record $1 or 1% as loyalty points.
If you use generally accepted accounting principles (GAAP) basis accounting, the 1% is deferred revenue as a portion of each sale is recorded as loyalty points. This accounts for the portion of the money received.
If your restaurant uses tax basis accounting, you will not have any deferred revenue related to loyalty points. Companies would recognize 100% of the revenue from a sale and won't account for loyalty programs at all.
Gift cards
Deferred revenue most often occurs when restaurants sell gift cards. Deferred revenue for gift card and gift certificate purposes is often known as gift card liability.
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