Running a restaurant is an operational orchestra that involves every department to be pitch perfect. Behind the scenes, proper financial reporting is essential to business success and regulatory compliance. FRS 102, the UK and Ireland’s primary financial reporting standard, presents unique challenges for restaurant businesses due to their lease-heavy operations, significant capital expenditures, and complex revenue streams.
This blog post is written in collaboration with Occupier, our leasing software partner who supports our restaurant groups with lease administration and lease accounting. In this piece, we will explore the key aspects of FRS 102 that restaurant owners and finance teams need to understand, covering everything from lease accounting and asset depreciation to revenue recognition and essential disclosures. Whether you’re opening your first location or managing a growing restaurant group, understanding these accounting principles will help you maintain compliance and make better financial decisions.
What is FRS 102?
FRS 102 (Financial Reporting Standard 102) introduced by the Financial Reporting Council (FRC), is the principal accounting standard applicable to most UK and Irish entities that aren’t required to apply International Financial Reporting Standards (IFRS). Implemented in 2015, it replaced the previous UK GAAP (Generally Accepted Accounting Principles) with a more streamlined, comprehensive framework. The Periodic Review was completed in March 2024, with key changes taking effect from January 2026.
This standard applies to private entities below certain size thresholds, including most small and medium-sized restaurants and hospitality businesses. While sharing similarities with IFRS, FRS 102 is specifically tailored to accommodate smaller businesses with proportionate reporting requirements.
Key differences from older accounting frameworks include more detailed disclosure requirements, changes to financial instrument accounting, and altered approaches to leases and fixed assets—all particularly relevant to restaurant operations.
What is FRS 102? Lease Accounting Compliance for UK & Ireland
Why It Matters for Restaurant Operators
The restaurant industry faces distinct accounting challenges that make FRS 102 compliance especially important:
- Lease-intensive operations: Most restaurants operate from leased premises, making lease accounting (Section 20) a critical area. Proper classification and reporting of these arrangements directly impact your financial statements.
- Significant asset investments: Commercial kitchens, dining room furnishings, and property improvements represent substantial investments that require careful capitalization and depreciation planning.
- Complex revenue streams: Modern restaurants often balance multiple revenue channels—dine-in service, takeaway, delivery platforms, gift cards, and deposits—each with unique accounting implications.
Incorrect accounting standards applications can lead to inaccurate financial reporting, tax issues, complicating funding applications, or hindering business sale prospects. For growing restaurant groups seeking investment, proper accounting becomes even more crucial.
Key Compliance Areas for Restaurateurs
1. Lease Accounting (Section 20)
Lease accounting represents one of the most significant areas for restaurant businesses under FRS 102. Most restaurants operate from leased premises, and proper classification has substantial implications for your financial statements.
Operating vs. Finance Leases Under FRS 102, leases fall into one category. They are almost all classified as Finance leases. Meaning that your lease accounting procedures will need to recognize both a right-of-use asset and a corresponding lease liability on the balance sheet.
For restaurants with multiple leased locations, this means a more detailed tracking of your lease portfolio often requiring software or accounting support to stay compliant and audit-ready.
Due to the fact that hospitality businesses are dominated by leasing arrangements, early consideration of the FRS 102 changes will be essential to ensure the incoming changes do not disrupt reporting cycles.
Other Lease Accounting Considerations Include:
- Lease Terms: Restaurant leases often include variable components based on turnover, which require careful accounting consideration.
- Improvement Clauses: Many restaurant leases contain provisions about fixtures and improvements, which affect the lease classification.
- Renewal Options: These can extend the effective lease term for accounting purposes.
- Rent Reviews and Stepped Rents: These need appropriate accounting treatment over the lease term.
- Embedded Leases: These can be difficult to define and can have a drastic financial reporting impact if they go uncovered.
2. Fixed Assets and Depreciation (Section 17)
Restaurants are asset-intensive businesses, with significant investments in kitchen equipment, furniture, fixtures, and leasehold improvements. FRS 102 Section 17 governs how these items should be capitalized and depreciated.
Capitalizing Kitchen Equipment and Fit-outs Items that provide benefits beyond one year should be capitalized rather than expensed immediately. For restaurants, this typically includes:
- Commercial kitchen equipment (ovens, refrigeration, dishwashers)
- Furniture and fixtures
- Leasehold improvements
- EPOS systems and technology infrastructure
Useful Life Assumptions and Depreciation Establishing realistic useful life assumptions is crucial for restaurant assets, which often face heavy usage and rapid obsolescence. Typical depreciation periods might include:
- Kitchen equipment: 5-10 years
- Furniture and fixtures: 5-7 years
- Leasehold improvements: Lesser of useful life or remaining lease term
- Technology systems: 3-5 years
Regular review of these assumptions is essential, especially as equipment ages or if business conditions change. Inappropriate depreciation schedules can significantly distort financial results.
3. Revenue Recognition (Section 23)
Modern restaurants often have multiple revenue streams that require careful accounting treatment under FRS 102 Section 23.
Gift Cards and Deposits When customers purchase gift cards or pay deposits for future services, these don’t represent immediate revenue. Instead, they create a liability until the goods or services are provided. Key considerations include:
- Recording gift card sales as deferred revenue until redemption
- Establishing policies for recognizing “breakage” (unredeemed card values)
- Properly accounting for deposits for future events or catering
Multi-Revenue Streams Today’s restaurants may generate income through numerous channels:
- Traditional dine-in service
- Takeaway operations
- Third-party delivery platforms (with commission structures)
- Retail product sales
- Catering services
Each stream may have different recognition timing, agent/principal considerations, and gross/net presentation requirements under FRS 102.
4. Disclosures and Financial Statement Preparation
FRS 102 requires specific disclosures relevant to restaurant businesses:
- Detailed information about operating lease commitments
- Fixed asset movement schedules
- Revenue recognition policies
- Going concern assessments
- Related party transactions
These disclosures provide transparency for stakeholders and ensure compliance with the standard. Preparing comprehensive, accurate information requires robust accounting systems and processes.
Tips for Staying Compliant
Work with FRS 102-Savvy Accountants Partner with accounting professionals like the team at Paperchase, experienced in both FRS 102 and the restaurant industry. Their specialized knowledge can help navigate the standard’s complexities within your specific business context.
Leverage Digital Tools Modern lease accounting software, ERP systems, and lease tracking tools can simplify compliance. Many solutions offer restaurant-specific features for managing multiple locations, equipment tracking, and specialized revenue streams.
Schedule Regular Reviews Establish a routine for reviewing lease obligations, asset registers, and depreciation assumptions. Annual reviews before financial statement preparation can prevent significant adjustments later.
Common Pitfalls to Avoid
Misclassifying Leases Incorrectly classifying a finance lease as an operating lease (or vice versa) can significantly misrepresent your financial position. Carefully evaluate all new lease agreements against FRS 102 criteria.
Overlooking Short-Term Lease Exemptions Some restaurants fail to take advantage of available exemptions for short-term leases or low-value assets, creating unnecessary accounting complexity.
Underreporting Liabilities or Overvaluing Assets Aggressive asset valuation or incomplete liability recognition might improve short-term financial appearances but creates risks for future reporting periods. Conservative, consistent application of accounting principles provides more sustainable benefits.
How Technology Can Help
Modern accounting technology offers significant advantages for restaurant businesses managing FRS 102 compliance:
- Cloud-based lease accounting systems providing real-time financial visibility
- Asset tracking solutions that automate depreciation calculations
- Integrated point-of-sale systems that simplify revenue recognition
- Specialized restaurant management platforms with built-in financial reporting
These tools not only support compliance but also provide valuable business intelligence for operational decision-making.
For restaurant owners and finance teams, mastering FRS 102 compliance isn’t just about satisfying regulatory requirements—it’s about establishing the financial transparency and accuracy needed for sustainable business growth. By understanding the standard’s application to leases, fixed assets, and revenue recognition, you’ll be better positioned to produce reliable financial information, secure financing, and make informed business decisions.
Whether you’re operating a single location or managing multiple sites, investing time in proper accounting processes now will pay dividends throughout your restaurant business journey.
