Proper restaurant accounting can save restaurants thousands of dollars every year. When financial records are accurate and aligned, owners gain full visibility into their margins and make confident, profitable decisions.
This guide highlights the most common restaurant accounting pain points and their solutions. As a restaurant owner, you will learn why maintaining accurate financial records is not just about compliance. It is, instead, a massive advantage that can drive profitability and long-term growth for your business.
Our CPA-led accounting teams specialize in the unique challenges of restaurant operations. We understand the technical details that often trip up owners and the pitfalls that cost them money.
What is Restaurant Accounting?
Restaurant accounting involves managing a restaurant’s financial aspects. It includes recording and interpreting the restaurant’s financial transactions related to operations, expenses, and sales.
If you properly maintain your restaurant’s accounts, you can make informed decisions, avoid complaints, and control costs (thus maximizing profits).
How is Accounting for Restaurants Different?
Unique Operational Challenges & Expenses
Unlike other food and beverage businesses, restaurants are in a unique position. They do not just sell food products but also provide a complete dining experience. This means that there are a ton more factors to consider. Paying for the venue and waiters and chefs, for example. Then, you have the cost of seating, lighting, and decoration. There are just too many additional moving parts that the rest of the food industry does not have to deal with. This is why accounting for restaurants is a unique niche with special needs.
Multiple Revenue Streams
Often, hotel owners have multiple revenue streams, such as on-site hotels, room service, rentals, etc. This makes the hotel’s accounting more complex than a business with a limited product line.
Seasonality
Many hotels face seasonality. Their capacity can be full during the on-seasons, while it can be almost empty during the off-seasons. Seasonality can majorly impact the cash flow and revenue, requiring hotels to manage liquidity effectively to cover expenses during low-revenue periods.
What are the Key Components of Accounting for Restaurants?
The following are the key components of restaurant accounting:
Restaurant Accounting Method
Cash accounting is the go-to method for most restaurants that generate less than $2 million in revenue. It’s straightforward—you record income when we actually get paid for meals and expenses when you get cash.
For hotels and restaurants with revenue over $2 million, it is better to switch to accrual accounting. Accrual accounting logs transactions when they occur, not just when cash changes hands. It gives you a clearer picture of your finances, showing how income and expenses match up. You can analyze your restaurant’s financial health more thoroughly and understand your cash flow dynamics better.
Bookkeeping
Bookkeeping forms the foundation of restaurant accounting. All the financial transactions in a restaurant, such as sales, purchases, expenses, and payments, will be recorded appropriately and accurately.
Bookkeeping is different from accounting. Bookkeeping involves tracking sales, purchases, payments, and receipts and ensuring accurate financial records. On the other hand, accounting encompasses bookkeeping and analyzing data to identify trends, helping business owners make informed financial decisions.
Hence, accountants utilize bookkeepers’ information to create reports and budgets for cash flow management.
Revenue Tracking
Tracking sales revenue is important for restaurants because it helps us monitor their financial performance. It involves recording all income sources, such as food and beverage sales, catering services, and merchandise sales.
The profit margins from different revenue streams may vary, so tracking them individually will help you identify more profitable areas. You can also identify what costs are incurred more/less in which area.
Cost of Goods Sold (COGS) Calculation:
COGS are the direct costs associated with producing the food and beverages served. They include the cost of raw ingredients, beverages, and any other directly attributable costs.
Calculating COGS accurately is essential for determining the restaurant’s gross profit and identifying areas where cost-saving measures can be implemented.
Inventory Management
Effective inventory management ensures the restaurant has sufficient supplies to meet demand while minimizing waste and spoilage. Proper inventory level tracking helps control costs and prevent over-ordering or under-ordering ingredients.
Labor Costs and Scheduling
Labor remains one of the biggest restaurant expenses. With POS data on guest counts, restaurants can schedule staff strategically instead of relying on guesswork. EA helped one client cut labor costs by $50K annually by syncing guest count data with labor scheduling.
Third-Party Reconciliation
Most restaurants rely heavily on third-party sales platforms like UberEats, DoorDash, Stripe, and Amex. Reconciling payouts with actual sales is complex because of deductions, tax variations, and delays. Without accurate reconciliation, restaurants can lose thousands of dollars annually.
Without accurate reconciliation, financial reporting is misleading because margins appear inflated, and taxes may be miscalculated. Accurate reconciliation provides the transparency restaurants need to grow sustainably
Tips for Basic Hotel and Restaurant Accounting
Gain confidence in your numbers from the following tips for basic hotel and restaurant accounting:
1. Stay Updated on Financial Regulations Specific to the Hospitality Industry
While it is not necessary to be an expert in finance and accounting to own a hotel or restaurant, staying updated on financial regulations specific to the hospitality industry can save you money on penalties and fines and assure you of sound financial practices and transparency, which are vital for maintaining the financial health of the business.
2. Choose an Accounting System
Hotels and restaurants have a lot on their plate when managing their accounting. Choosing an appropriate accounting system is important from bookkeeping to payroll management, preparing invoices, and budgeting.
Accounting software makes the accounting process for hotels easier. For example, By using Xero and QuickBooks, you can keep track of sales and expenses and do financial reporting easily.
3. Master Accounts Payable and Payroll
Mastering your accounts payable and payroll is essential for smooth financial management. Setting up efficient processes ensures timely payments to suppliers and accurate payroll management.
Automated reminders and systems streamline invoice payments, reducing the risk of missed deadlines.
Similarly, robust payroll systems handle wages, benefits, and tax calculations, ensuring employees are compensated correctly. Implementing these practices guarantees your business operates smoothly and maintains financial integrity.
4. Reconcile Your Accounts Everyday
Account reconciliation verifies every transaction across your accounts to ensure your final balances match. If your accounts fail to balance at the end of the day, it may indicate theft or misuse of your hotel’s funds. That is why hotel owners must carry out account reconciliation every day.
How Do You Manage Food Spoilage in a Restaurant?
Spoilage is inevitable, but it must be accounted for properly. By tracking spoilage separately from waste, restaurants can identify root causes: mishandling, expiration, or over-ordering and adjust purchasing accordingly.
Spoilage costs are booked as a Food Spoilage Expense, ensuring gross margins reflect true profitability.
Cash Flow Management
Maintaining a positive cash flow is essential for any business, and restaurants are no exception. Efficient accounting for restaurants helps track cash inflows and outflows, ensuring enough working capital to meet day-to-day expenses and investments.
One aspect of cash flow management is ensuring that your restaurant generates enough profit margins and looking for factors that may decrease the profit.
Learn effective cost-control strategies for restaurants in this guide provided by the Restaurant Owner community.
Generating regular financial reports, such as income statements, balance sheets, and cash flow statements, allows restaurant owners and managers to evaluate the business’s performance, identify trends, and make data-driven decisions.
Tax Compliance
Restaurants must comply with multiple tax rules, including varying state regulations for delivery services like Uber Eats and DoorDash. Proper reconciliation ensures taxes are correctly recorded and remitted.
Budgeting and Forecasting
Creating forward-looking budgets and cash flow forecasts allows owners to set growth targets while preparing for slowdowns. A connected accounting system transforms these from guesswork into reliable planning tools.
What is the Best Accounting Software for Restaurants?
For small or single-location restaurants, QuickBooks or Xero can be more than enough. They cover the basics such as tracking sales, recording expenses, handling payroll, and generating financial reports. If your restaurant has relatively simple operations, and straightforward inventory, QuickBooks is enough.
As restaurants expand, whether by opening multiple locations, managing large vendor networks, or handling higher volumes of third-party delivery sales, QuickBooks and Xero start to show their limits. This is when platforms like Restaurant365 become essential.
Built specifically for the hospitality industry, Restaurant365 integrates POS systems, payroll, inventory management, and vendor invoicing into one place, giving operators the visibility and automation they need to stay on top of costs and scale profitably.
Other specialised tools that add value:
- EDI for automated vendor invoicing and reducing manual entry.
- Branch app for seamless digital tip management.
- Tripleseat/OpenTable for event and reservation tracking.
What Accounting Method is Suitable for Restaurants?
A small restaurant can use either cash or accrual accounting method. However, according to IRS, a business must use accrual method of accounting if its average annual gross receipts are $30 million or less for the prior 3 tax years.
How Can Outsourced Restaurant Accounting Services Benefit You?
In the challenging world of restaurants, where low margins and high stress prevail, many owners and operators question whether they can escape the cycle of runaway payroll and rising food and beverage costs. The thought of giving up may seem tempting.
With the right support and expertise, restaurant owners can have a balanced book of accounts and the restaurant of their dreams!
You didn’t enter the hospitality industry to record entries and reconcile accounts, did you?
The key to successful accounting for restaurants is hiring the right professionals and employing the right tools based on your restaurant’s needs.
From Chaos to Control: EA’s Restaurant Accounting Case Study
EA recently helped a US-based restaurant chain save thousands of dollars by addressing accounting inefficiencies. (Click here to learn more)
Key Results:
- Accurate third-party reconciliation across Uber Eats, DoorDash, and Amex, stopping revenue leakage.
- Fraud detection: a recurring small fraud ($20s) that accumulated into a significant annual loss.
- Correction of unit-of-measurement errors that overstated COGS.
- Accurate POS mapping to ensure sales and expenses were classified correctly.
- Labor scheduling tied to guest count, saving $50K in unnecessary staffing costs.
Conclusion
Restaurant industry has thing margins. One of the ways to save and grow in the industry is to have accurate records. From vendor automation to labor scheduling and third-party reconciliation, restaurant accounting requires knowledge, expertise and the right tools.
Restaurant365 has become the go-to for larger restaurant groups thanks to its ability to integrate POS, payroll, inventory, and vendor management in one place. Smaller restaurants may still find Xero and QuickBooks adequate, but they often lack advanced POS and reconciliation integrations.
With EA’s outsourced restaurant accounting services, one can finally put their financial records on autopilot and focus on delighting his/her guests.