How to choose between cash and accrual accounting for your restaurant

Restaurant owners have to make countless decisions, from menu creation to staffing. One choice that often gets overlooked is which accounting method to use. Cash and accrual accounting each have pros and cons, and the right fit depends on your restaurant’s size and goals, including the decision of using accrual accounting for your restaurant.

Cash accounting basics. Under the cash method, you record income when you receive cash and expenses when you pay them. This approach is simple and gives a real‑time view of cash in your bank account. For a small cafe just starting out, “cash vs accrual accounting for restaurants” often leans toward cash because it’s straightforward. However, understanding accrual accounting for your restaurant can provide additional benefits.

Accrual accounting basics. With the accrual method, income and expenses are recorded when they are earned or incurred, not when cash changes hands. This gives a more accurate picture of profitability, especially when you offer credit terms or have high accounts payable. Hence, exploring accrual accounting for your restaurant is essential for long-term financial planning.

Pros and cons. Cash accounting is easy to manage but can distort profits if you make big purchases or receive deposits at different times. Accrual accounting requires more work but reflects obligations like rent and supplier invoices more accurately. Many restaurants switch to accrual as they grow, so they can see seasonality and plan for tax liabilities.

Compliance factors. The IRS allows most restaurants with less than $25 million in annual revenue to use either method, but some lenders prefer accrual statements when evaluating loan applications.

Key takeaway. If you’re a small bistro with simple finances, cash accounting might be adequate. If you run a busy Seattle restaurant with multiple suppliers and deferred payments, accrual accounting gives a clearer financial picture.