Liabilities are listed on the right hand side. Like assets, liabilities are classified as current ornoncurrent/long-term. (Current liabilities refer to items that are expected to be satisfied withinthe next twelve months, such as paying your food vendor for a purchase. Noncurrent liabilitiesare those liabilities that are not expected to be satisfied within the next twelve months.)Determine the total liabilities of you restaurant by adding up all the liabilities.The net worth of your restaurant is the difference between the total assets and the total liabilities.This is the value of your restaurant on a particular day.
The health of a restaurant can be analyzed from the
at any point in time(i.e. today, last month or tomorrow). The
allows operators to forecastshort and long-term cash flow. As important as it is to review the
, fewrestaurants ever bother to prepare it. By checking the accuracy of the
anoperator can ensure the accuracy of the
lists allthe assets, liabilities and equity of the restaurant. The formula for the
Assets = Liabilities + Equity
In the simplest terms, assets are what the business owns such as equipment, inventoryor cash. Liabilities are what the business owes such as vendor bills, loans, notes andleases. Even a gift certificate is a liability because the restaurant owes someone a mealat a future date. Equity is the ownership of the business. The most common form of equity is stock. Whoever owns the stock owns the equity. (For example, the 5 millionshareholders of Microsoft own the company. Bill Gates just owns the largest number of shares).
It is important that assets and liabilities are properly classified on the
. Toget a clearer picture of the business, an operator should break down the
into sub categories. The breakdown is explained as follows:
- assets with life less than a year (i.e. cash, credit card receivables,inventory and prepaid expenses).
- assets with a life greater than a year that directly attribute to producingrevenue (i.e. equipment, computers, furniture and leasehold improvements).
- assets with a life longer than a year that are not directly involved in theproduction of revenue (i.e. security deposits, trademarks and artwork).
Liabilities require a similar classification and are broken down as follows:
debts due within one year (i.e. accounts payable, accruedexpenses, short-term loans and even gift certificates).