Author

By Sam Andrews
Animator / Designer / Dancer
6/12/2021

Accounting & Bookkeeping for Restaurants

Paying your bills on time and keeping your vendors and suppliers happy is essential for the efficient functioning of a restaurant. Whether running a small bakery or a fine dining restaurant, you need a POS system for cash management, sending or printing receipts, inventory management, order management, and back-office reporting. This is further broken down into business-specific categories or sub-accounts, such as inventory, sales, and marketing.

Your P&L statement reflects sales and costs, and reconciles items like sales volume, food costs, labor costs, operating costs and your profits. This report should provide you with an overall profitability health check of your business. Equally importantly, the P&L is a guiding post to drive business decisions such as when and where to cut costs, how to increase revenue or whether to change your business strategy. We are building a customer-facing accounting team that will partner with restaurant operators to manage their business. As a restaurant accountant, you will manage all aspects of financial bookkeeping for multiple restaurants .

Should restaurants use cash or accrual accounting?

Using this method will allow you to see a more accurate picture of how expenses happen and income is generated. It also demonstrates the balance between your revenue and expense spending. If you follow a similar pattern, the cash method would inaccurately show that your restaurant has large sporadic delivery expenses, when in fact they might be smaller and more regular.

Accurate restaurant accounting has a multitude of benefits for the success and growth of your business. Accounting leads to better financial management, deeper insights into your business’s financial status, better tracking of cash flows, and a more robust system of tracking inventory. You’ll also learn to take control of your prime costs and adjust menu pricing based on demands and inventory costs. If you are not using financial reporting for your restaurant, then you are running your business blind.

There are many independent accountants and accounting firms that specialize in restaurant bookkeeping. Since accounting is complicated and the restaurant industry is unique you should choose an accountant expert because they provide in-depth operational analysis of your financials and tax consulting. Restaurant accounting can quickly become too complex for restaurant owners to handle. If you are not confident in your ability or lack the time that’s needed for accurate and thorough bookkeeping, consider hiring an accountant who specializes in that profession. One of the first places to start when handling your restaurant’s accounting is ask other chef’s how they handle their own accounting records. Knowing how a colleague approaches restaurant bookkeeping may provide insight as to how you should address your own books and records.

What is Restaurant Accounting?

According to Chron.com, restaurants under $1M per year in revenue can choose their own small business accounting method and most often it would be the cash method. Larger restaurants must use the accrual method to comply with the IRS. Your controllable costs are the restaurant expenses you can control. We recommend monitoring prime costs on a weekly basis to track fluctuations in expenses and identify areas where you can cut unnecessary costs.

A restaurant bookkeeper oversees the financial reports of the restaurant. They ensure that the figures are accurate, track inventory, and meet tax obligations. The overall goal with bookkeeping is to minimize operating expenses and maximize profits. A restaurant profit and loss statement, also called a P&L, is a financial document detailing the total revenue and expenses over a predetermined period of time.

Key Performance Indicators (KPIs)

With such tight profit margins in the restaurant industry it is important to analyze your financial reports on a regular basis. Just to name a few, small business restaurants must keep track of revenue reports, review profit and loss statements, calculate cost of goods sold and cost of labor. Restaurant accounting software is designed to make your life as a restaurant owner much simpler and more efficient. Software will streamline your data entry, generate customized invoices and profit & loss statements, and track revenue, expenses, and cash flow.

Once you can anticipate your busy full charge bookkeepers, you can schedule your staff members accordingly. One of the first items you will have to figure out is how to properly record your sales. Many small business restaurant owners find using QuickBooks for restaurants as an effective software recording system.

Restaurant profit and loss statements (P&L) or income statements reflect the expenses, costs, and sales of your restaurant during a specific period of time. This statement enables you to analyze the financial progress of your restaurant. With this statement, you’ll be able to determine where you are making or losing money. If your restaurant has yet to get a POS system up and running, it’s time to do that now! This is used for cash and inventory management, back-office reporting, and much more.

Either way, in this blog I will be answering these frequently asked… Join over 1 million businesses scanning & organizing receipts, creating expense reports and more—with Shoeboxed. Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.

Familiarize Yourself With Tax Terminology

So, while you don’t need to report the tips as a part of your restaurant revenue and it can’t be subject to withholding, they should be factored in. This part will give you a comprehensive overview of restaurant accounting tips you should take into consideration when running a restaurant business. The big thing to cover right away is the accounting method which would be suitable for restaurants.

This would be a salaried position with time-to-time opportunities to work from home. Please note that all salary figures are approximations based upon third party submissions to SimplyHired or its affiliates. These figures are given to the SimplyHired users for the purpose of generalized comparison only. Minimum wage may differ by jurisdiction and you should consult the employer for actual salary figures. You also don’t want to create a negative impression of yourself or the restaurant because this will ultimately affect your business.

Intercompany entries between franchised restaurants, cafes, bars, and diners. Need insight into if you can afford to upgrade your kitchen equipment or remodel your bathroom this year? Part of your accountant’s job should be to know what options you have, or at least what plan should be put in place so you have those funds down the line. Crunching numbers, evaluating spreadsheets, and comparing order forms can become draining if you’re spending several hours on it at a time. Besides your productivity slowing down if you start to become mentally exhausted, you could also start making mistakes.

With the right bookkeeper, you can rest easy knowing that your restaurant’s finances are in good hands. The United States federal government levies taxes on the income of its citizens and legal residents. The Internal Revenue Service is the agency responsible for collecting these taxes. Federal income tax rates have changed several times since 1913, when the… Cost of goods sold is calculated by adding the beginning inventory costs to any purchased inventory costs and subtracting your ending inventory from that amount. One thing you don’t want to do is to run out of ingredients for an item that is listed on your menu.

As tax day approaches, Turbo Tax and others go mobile

This involves comparing cash receipts, checks and credit card payments with sales for the day. Handling accounts payable is another an important bookkeeping process. Entering and paying bills are essential tasks to accomplish which helps maintain good relationships with your vendors. Keeping records of how much you’re spending is a necessary step in determining how much money you need to earn each week to break even or earn a profit. A bookkeeper oversees payroll and maintains records for tax obligations.

This chart can be broken down into subcategories that specifically tailor to your business. That way, each category can easily be monitored and compared to industry averages. The improper posting of POS transactions and expenses is at the top of the list of common errors. Avoiding this mistake involves detailed training for any staff that works with the POS system and using the cash basis method for accounting daily. As an owner, you know the challenges of running a restaurant, such as staffing, inventory management, and controlling the cost of goods sold.

Products for Restaurant Operations

To calculate food costs, the preparation cost of each item is divided by the revenue from each item. Cost of Good Sale is the actual cost that goes behind producing what you sell. This key figure will indicate how efficiently you are controlling your inventory and pricing your items.

Every employee has a record of their pay, which is included in year-end reports and other financial statements. Your financial forecast gives you a rough estimate of how much revenue you’ll generate in the future. A P&L statement is your guiding post to drive business decisions (when and where to cut costs, how to increase revenue, whether to change your business strategy, etc.). You and your accountant can use your P&L to review the total revenue and expenses of your business over a period of time.

You can use revenue reports as a financial projection tool to anticipate how much revenue you’ll generate in the future. While long-term trend analysis is important, you should also pull revenue reports on a daily and weekly basis. The best restaurant accounting software addresses the intricacies of restaurant operations and back office management, such as inventory taking, cost management, and employee scheduling. More advanced restaurant accounting software may also offer features, such as catering management and variance analysis. For other accounting software suggestions, check out our guide to the best small business accounting software.

So here are the essentials of restaurant accounting and bookkeeping when it comes toreports, processes, and KPIs. Bookkeepers are more task-based and manage accounts payable, payroll, and posting journal entries. Rather than trying to handle the books yourself or hiring someone to work internally, we recommend getting an outside bookkeeper. This wouldn’t be a full-time position, and they’re a separate person from your business accountant. Thus, they have no control over or connection to the daily ordering and sales in your restaurant. As an incentive for restaurants to report employee tips collected on the employee’s W-2, restaurants can claim a tax credit on their tax return equal to 7.65% of tips reported by employees.

Under accrual accounting, CoGS is recorded as inventory is used, not when the suppliers are paid. At first blush, cash-based accounting might seem like the best kind for restaurants. It records income as it enters your bank account and records expenses when they’re paid.

• For example, if your restaurant has $3,000 worth of inventory on hand at the beginning of the week and purchases another $2,000 of food products, you have $5,000 worth of inventory.
• So, while you don’t need to report the tips as a part of your restaurant revenue and it can’t be subject to withholding, they should be factored in.
• That way you can easily see where your money is going and where it is coming from and make sure that you have an appropriate amount flowing each way.
• This key figure will indicate how efficiently you are controlling your inventory and pricing your items.
• While there are some basic reports virtually every business needs, there are several additional reports you may need when it comes to bookkeeping for restaurants.

This report is used to assess the financial health of the restaurant and to forecast short-term and long-term cash flow. FreshBooks offers a balance sheet, general ledger, COGS report, Account Payable, Chart of Accounts, Journal Entries, and access to professional accountants ready to tackle any problems that arise. You’ll have access to the metric that matter and be able to reconcile books quickly and efficiently. Check out all of the available accounting software products available on FreshBooks. Prime cost is a summation of all your labor costs and your cost of goods sold. Paying your restaurant staff, including front-of-office staff and kitchen crew, is part of your labor costs.