What looks better on the books?

You can probably chalk up this post due to my inexperience as far as bookkeeping goes… But anyways, we have a special during the week that is buy any 16" pizza and get a free 12" thin cheese. You ring up the 16" pizza, then ring up a 12" cheese, and then ring up a coupon button that takes off (-$9.25). I notice at the end of the week, my coupons category is pretty high in the reports, even though we’re only giving away something that costs us less than $2. So as far as the books are concerned, is it better to keep taking off the $9.25 (which I think is good perception for the customer to see), or should I just have a button that says free 12" cheese with a 0 dollar price next to it?

Anything thoughts or input on this?

Thanks guys!

Not sure if I’m understanding your question, but the big thing is for the coupon to say “FREE” thin crust. The “FREE” on the coupon is one of the key words that gets them to use it. What it says on your POS really doesn’t matter. They were already drawn to make the purchase.

Yeah yeah yeah… This is how it reads on the receipt now:

16" Pizza 14.15
12" Pizza 9.25
FREE 12" -9.25

Or should it be this

16" Pizza 14.15
FREE 12" 0.00

The reason I ask because when we do the reporting it shows up under coupons and is one pretty big number.

the second, less is better to read . . .

I don’t know how you track inventory, but in regards to inventory tracking you would want to ring up the second pizza and discount it off.

The true number that you are looking for in the books is the ‘Net Sales’ number. This would be gross sales - discounts - refunds, etc. Net sales is what matters when doing the books. Essentially, you could charge $1000 per pizza but discount it down to $10 and your gross sales would be astronomical, but it wouldn’t matter because net sales accounts for the actual sales you made in exchange for the inventory you sold.

The reason I prefer to ring up the pizza and discount it off, is becasue my POS will give me a report to the penny of what it cost me to make that 12" pizza (and it depends each time based off of which toppings they received, etc.) and that way I can reconcile actual food costs against ideal food costs at the end of the week.

If you do it the second way, you can make an average cost for the 12" you are giving away, but you don’t know exactly.

Hello all, I think this is my first post on TT, although I’ve lurked from time to time. (I really should introduce myself in another thread)

I think Mandino is on the same mark as myself. On the customer slip, they get a ‘free’ $0.00 pizza, but my pos tracks the actual cost (marketing & inventory). Say you discounted $500 of product, you want to know the actual FC% along with inventory control. I have a promotional category that falls in with my advertising budget, but I like to keep track of total sales associated with it for tax reporting and tracking my FC%.

I could be wrong in my way of handling it, but it helps significantly.

I do it the first way, which I believe is more correct. The first way will give you a number on your books (Total Sales) that allows you to see how you are doing versus ideal food costs. After subtracting discounts you’ll be able to see your true food costs.

If you do it the second way, you’ll lose track of how you’re performing versus ideal food costs.

Beyond the value in analysis, I also believe the first one is the proper way to do it according to GAAP.

I think it depends on your pos. I do it the 2nd way - its much easier takes and take less effort.

Ideal food cost in hard $'s is not a function or related to actual sales (only the %'ge versus sales is) so either way you put the sale though shouldn’t effect it.

i.e. if your actual use is $510.61 in food and your POS tells you your ideal food cost should be $500.10 then what does this have to do with how much your sales are?

Thanks for the posts guy.

My post really has nothing to do with food costs. I just hate seeing at the end of the month our coupons being astronomical. It makes it look like I’m giving the store away. The $2 coupons are one thing, but the way I have it setup up it takes off $9.25 and that really adds up.

we can track the number of, and value of the free items on our POS (free versus the regular price).

At the end of the day you need to keep tabs on it - either way you process it you are giving away that value!!

I find knowing the value of coupons redeemed vs full price a valuable tool to evaluate my business. I have seen high discount weeks reach nearly 20% of full price but I tend to average just under 10%. Too me this is one of ten or so key numbers that I follow every week.

Personally, I feel like accounting for the full value of the discount allows you to see a true picture of what’s going on. If you don’t like seeing the high discounts, maybe you shouldn’t run those coupons. If those coupons are working for you, keep running them but at least you’ll see on your books they are coming at a cost. At any rate, if you change the way you’re accounting for something to make it look better, you’re fooling yourself as to what’s actually happening in your business. This blinds you to make educated decisions.

Whenever we give anything away it is always rung up as a sale and deducted off the customer cHarge.

This is two fold.

1: It shows the customer a value of what it would be if they purchased it regardless of wheter it is “Free” or not.

2: All promotional items are recorded as a cost under “Cutomer Promotions and Marketing” for taxation purposes.

In Australia we can claim this as a taxable deduction at the full retail price, providing it is listed under a sale and we pay the Govt the GST (10% Goods and Services Tax). This way it also shows sales at what they would be for all items gone out the shop which makes the gross sales figure looks better should you wish to sell your store at some time, plus it gives a better tax write off at the end of the financial year. It also allows for costing your stock more accurately.

Dave

Remember, folks, there are two types of accounting (well, more than that but let’s keep it simple). Financial accounting and managerial accounting. The financial accounting is used to evaluate the business from an external perspective and the managerial accounting is to help management manage. The OP asked, “What looks better on the books?” Well, you need financial accounting to objectively evaluate the business (both for folks internal to the business but also for investors, lenders, and the government) and managerial accounting for internal control. Financial accounting would want to know what net revenue you brought in and costs among other things. But managerial accounting would also want to know what the gross sales were, the discounts given, and so much more that you need to make strategic decisions.

So in this case, you want to know what the gross sales were (and their associated food cost) as well as the net cost (and the adjusted food cost). For example, the make table would be judged on meeting the former as discounting is beyond their control. They are responsible for portioning and need to meet the expected food cost based on the original price. However, the manager needs to know if net sales results in a unacceptably actual high food cost.

So use both. You have to in order to evaluate and run your organization.