industry guides

Restaurant Bookkeeping: Managing Cash, Inventory, and Food Costs

A comprehensive guide to restaurant bookkeeping. Learn how to track food costs, manage inventory, handle cash and tips, and keep your restaurant financially healthy.

KW
Kevin Wilson
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Restaurants operate on razor-thin margins. The difference between a profitable restaurant and a struggling one often comes down to financial management—knowing your food costs, controlling waste, tracking cash, and making data-driven decisions.

Yet many restaurant owners fly blind, checking the bank balance and hoping for the best. That approach leads to unpleasant surprises and, too often, closed doors.

This guide covers the essential bookkeeping practices that keep restaurants financially healthy.

Why Restaurant Bookkeeping Is Challenging

Restaurants face unique financial complexities:

High Volume of Small Transactions

A busy restaurant processes hundreds of transactions daily. Cash, credit cards, third-party delivery platforms, catering—multiple streams require tracking and reconciliation.

Perishable Inventory

Unlike retail, your inventory spoils. A shoe store can hold inventory for months; a restaurant might discard half of what doesn’t sell. This creates unique cost tracking challenges.

Tight Margins

Industry average net profit margins run 3-9%. There’s no room for error. A few points of food waste or labor inefficiency can turn profit into loss.

Cash Handling Risks

Cash businesses face theft, errors, and tracking difficulties. Every register, every shift needs controls.

Complex Labor Situations

Between hourly workers, tipped employees, overtime, different pay rates, and volatile scheduling needs, labor tracking is complex.

Tip Reporting and Compliance

Tips involve employee income reporting, employer obligations, and potential liabilities if not handled correctly.

Essential Restaurant Metrics

Before diving into processes, know the numbers that matter:

Prime Cost

Prime Cost = Cost of Goods Sold (food + beverage) + Labor

Target: 55-65% of revenue

This is the most important restaurant metric. If prime cost exceeds 65%, you’re in trouble.

Food Cost Percentage

Food Cost % = Cost of Ingredients / Food Revenue × 100

Target: 28-35% for full service, 25-30% for fast casual

Beverage Cost Percentage

Beverage Cost % = Cost of Beverages / Beverage Revenue × 100

Target: 18-24% for alcohol, 10-15% for non-alcoholic

Labor Cost Percentage

Labor Cost % = Total Labor Cost / Total Revenue × 100

Target: 25-35%, varies by concept

Break-Even Point

Fixed Costs / (1 - Prime Cost %)

Know how much you need to sell to cover all costs.

Setting Up Your Chart of Accounts

A restaurant-specific chart of accounts enables meaningful reporting:

Revenue Accounts

Cost of Goods Sold

Labor Expenses

Operating Expenses

Daily Bookkeeping Tasks

Restaurant bookkeeping happens daily—you can’t let it pile up.

Daily Sales Reconciliation

At the end of every day:

  1. Run POS reports: Total sales by category, payment type, server
  2. Count cash: Each register, each drawer
  3. Reconcile cash to POS: Cash should equal expected cash per POS
  4. Document discrepancies: Note any overages or shortages
  5. Record tips distributed: Track all tip payments

Cash variance tolerance: Keep it under $10 per day. Regular larger variances indicate problems.

Daily Deposit

Daily Labor Tracking

Weekly Bookkeeping Tasks

Bank and Credit Card Reconciliation

Weekly reconciliation catches problems before they compound:

Accounts Payable Review

Inventory Spot Checks

Beyond full counts, do weekly spot checks:

Labor Review

Monthly Bookkeeping Tasks

Full Inventory Count

Count everything. This is the foundation of accurate food cost calculation.

Process:

  1. Same time each month (typically after close on last day)
  2. Same people counting for consistency
  3. Organized by category matching chart of accounts
  4. Record counts and costs

Calculating monthly food cost: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Monthly P&L Review

Generate and review:

Food Cost Analysis

Actual Food Cost % = COGS / Food Revenue × 100

Compare to:

If actual exceeds target, investigate:

Labor Analysis

Review labor cost percentage. If high:

Vendor Review

Monthly:

Inventory Management

Inventory control directly impacts profitability.

Ordering Practices

Par levels: Establish minimum quantities for each item. Order to par, not on a schedule.

Receiving verification: Check deliveries against purchase orders. Weigh proteins. Note quality issues.

FIFO: First In, First Out. Rotate stock properly.

Counting Best Practices

Use count sheets: Organized by storage location and category

Two-person counts: One counts, one records—reduces errors

Consistent timing: Same day and time each period

Extend counts immediately: Multiply counts by costs before leaving inventory room

Analyzing Inventory Issues

Theoretical vs. Actual Food Cost:

Variance indicates waste, theft, portion issues, or recipe problems.

Common inventory issues:

Cash Handling Controls

Cash businesses need tight controls.

Prevention Measures

Separate duties: Different people handle cash, count registers, and make deposits

Surveillance: Cameras covering registers and storage areas

Sequential checks: Use pre-numbered checks for voids and comps

Manager approval: Require approval for voids, comps, and over-rings

Regular audits: Surprise cash counts

Daily Cash Procedures

  1. Each shift starts with verified bank amount
  2. All transactions recorded in POS
  3. End of shift: server/cashier counts drawer
  4. Manager verifies count
  5. Overage/shortage documented
  6. Cash secured; deposit prepared

Deposit Procedures

Monitoring for Problems

Watch for patterns:

Tip Tracking and Compliance

Tips create tax and compliance obligations.

Types of Tips

Cash tips: Paid directly to employee, must be reported

Credit card tips: Flow through payroll system

Tip pools: Shared among specified employees

Reporting Requirements

Employees must report tips over $20/month to employer. Employers must:

Tip Credit Considerations

If you pay tipped employees a lower cash wage (taking tip credit):

Service Charges vs. Tips

Service charges (auto-gratuity for large parties) are different from tips:

Managing Third-Party Delivery

Delivery platforms create bookkeeping complexity.

Revenue Recording

You receive a net payment, but record:

Reconciliation Challenges

Dedicate time weekly to reconcile delivery platform statements.

True Profitability

Calculate actual margin on delivery sales:

Some items aren’t profitable on delivery even if profitable in-house.

Cost Control Strategies

Analyze each item:

Stars: High margin, high popularity (promote these) Puzzles: High margin, low popularity (reposition or promote) Plowhorses: Low margin, high popularity (reduce cost or raise price) Dogs: Low margin, low popularity (consider removing)

Portion Control

Implement standards:

Waste Tracking

Track all waste:

Understanding where waste happens enables action.

Vendor Management

Financial Reporting for Restaurants

Weekly Flash Report

Quick snapshot:

Monthly P&L

Detailed profitability:

Monthly Metrics Dashboard

Track trends over time:

Cash Flow Report

Critical for restaurant survival:

Common Restaurant Bookkeeping Mistakes

Mistake 1: Infrequent Inventory Counts

Monthly minimum. Weekly for high-cost items. Infrequent counting means inaccurate food cost calculations.

Mistake 2: Ignoring Daily Reconciliation

When you don’t reconcile daily, small problems become big problems. Cash variances compound. Errors hide.

Mistake 3: Not Separating Revenue Streams

If all sales go to one account, you can’t analyze food vs. beverage vs. catering performance.

Mistake 4: Underestimating Labor Cost

Include all costs: wages, payroll taxes, workers’ comp, benefits, employee meals. True labor cost is significantly higher than gross wages.

Mistake 5: Missing Third-Party Delivery Costs

Platform fees are significant (15-30%). If you record only the net deposit, your revenue and expense analysis is wrong.

Mistake 6: Weak Cash Controls

In a cash business, lack of controls invites problems. Daily reconciliation and proper procedures are essential.

Technology for Restaurant Bookkeeping

Point of Sale (POS)

Choose a POS that provides:

Accounting Software

Options:

Inventory Management

Labor Scheduling and Tracking

Your Next Steps

This Week

  1. Count your key proteins and alcohol
  2. Calculate this month’s food cost percentage
  3. Review last week’s labor hours vs. sales

This Month

  1. Implement daily cash reconciliation procedures
  2. Create proper chart of accounts if you haven’t
  3. Set up weekly inventory spot checks

Ongoing

  1. Monthly full inventory counts
  2. Weekly financial review (flash report)
  3. Monthly P&L analysis with action items

The restaurants that thrive are the ones that know their numbers. Small improvements in food cost, labor efficiency, or waste reduction translate directly to profit in this tight-margin industry.

Need help getting your restaurant finances under control? At Profit Path Books, we understand the unique challenges of restaurant bookkeeping. Book a consultation to discuss how we can help you improve profitability and reduce financial stress.

KW

Kevin Wilson

Profit First Professional and QuickBooks ProAdvisor helping small business owners in Utah and beyond achieve financial clarity and consistent profitability.

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