A Quick Guide to Common Franchise Accounting Terminology

Owning a franchise, large or small, requires a working knowledge of some accounting terminology that is frequently used. Whether it is restaurant accounting or multi-unit franchise accounting, the terminology is basically the same. Understanding these terms places the franchise owner and the franchise in a better position for success.

The Balance Sheet: A franchise's assets, liabilities, and owner’s equity are displayed in this tool.

The title - Balance Sheet - is self-descriptive as that is the final outcome when assets and liabilities are compared. An example of this balance would be in the purchase of restaurant equipment. In restaurant accounting, as well as other franchise accounting, the equipment would be considered an asset. The money used to purchase the equipment would be considered a liability when the purchase is done on credit. In multi-unit franchise accounting, each unit would develop a balance sheet. The information in the individual unit balance sheet would be used in developing a balance sheet for the entire organization.

Bookkeeping: This is the recording process that occurs in business. Financial statements are derived from this information.

Financial Statements: This is an umbrella term which normally includes the statements important to a business. These four are: the balance sheet, the income statement, statement of retained earnings, and the statement of cash flows.

The Income Statement: This is the means in which a franchise owner will determine the success of his or her business. An income statement shows the revenue and expenses of a set period of time. Some may refer to this as the profit and loss (P&L) statement.

Owning a franchise doesn't mean one needs to be an accountant to be successful. From restaurant accounting to multi-unit franchise accounting, the terminology is similar; however, understanding them is the key to an owner's success.