Restaurant Accounting Guide - Learn 6 Best Practices Today!

Let's talk restaurant accounting. Because if you're running a restaurant, it's the backbone of everything. You've got to know your costs, keep an eye on the money coming in and out, and make sure your place isn't just staying afloat but actually crushing those growth goals.

Restaurant accounting covers it all—think tracking every single sale and expense, and pulling together those fancy financial reports. With good accounting, you can dig deep into your numbers, figure out what's making you money (and what isn't), and boost those profits.

That's why everyone—yes, everyone—from your servers to your chefs needs to get the basics down. And for the big shots (you know who you are), it's time to make accounting easier with some slick, restaurant-specific automation tools like restaurant accounting software.

Here’s the bottom line, getting a handle on restaurant accounting will keep your finances solid and help you make informed decisions for your business. And we're about to give you the lowdown on how to do accounting in the restaurant industry.

What does restaurant accounting include? 

Restaurant accounting is all about keeping tabs on your money. You’re essentially recording, analyzing, and figuring out what all those numbers mean for your restaurant. Now, it covers a whole bunch of things to keep your finances in check. Here’s a quick rundown of what it includes:

• Inventory management: Keeping track of what’s in stock, what’s sold, and what needs to be ordered.
• Food costs: Calculating the cost of ingredients and making sure your menu pricing covers it.
• Labor costs: Monitoring wages, overtime, and benefits to keep staffing and restaurant expenses in line.
• Sales tracking: Recording every sale, whether it's dine-in, takeout, or delivery, so you know exactly what’s bringing in the dough.
• Expense tracking: Logging all those bills—from rent and utilities to that shiny new kitchen equipment.
• Accounts payable and receivable: Managing what you owe to suppliers and what customers owe you. Basically, keeping everyone happy.
• Bank reconciliation: Matching up your records with the bank statements to make sure every cent is accounted for.
• Financial reporting: Creating balance sheets, income statements, and cash flow statements to get a clear picture of your financial health.
• Budgeting and forecasting: Setting budgets, defining KPIs like prime costs and cost of goods sold (COGS) ratios, and tracking performance toward your financial goals.
• Tax preparation and compliance: Handling all things taxes and payroll taxes—filing returns, staying compliant, and finding ways to save where you can.
• Auditing and internal controls: Reviewing records and controls to catch any errors or fraud before they become big problems.
• Providing financial insights: Offering advice and analysis to help you make smart, data-driven decisions for your restaurant.

There you have it! A quick look at what goes into restaurant accounting.

Benefits of accounting for restaurant business owners 

Stable financial health

Good accounting keeps your restaurant's finances rock solid. By staying on top of your numbers and regularly checking your financial statements, you'll know exactly what's going on with your money. This helps you manage your cash flow so you’re not caught off guard when it’s time to pay the bills. With a stable financial foundation, you can focus on what really matters—serving great food and growing your business.

Make data-driven decisions 

Forget guessing games, let’s talk facts. When you track your KPIs and dig into your financial reports, you get the real scoop on what’s working and what’s not. Labor costs creeping up? Time to rethink your staffing or adjust your menu prices. Got a cash flow problem? Maybe it's time for a special promo or a new supplier. Data gives you the power to make smarter moves and avoid costly mistakes.

Stay compliant with the law

Nobody wants to deal with the IRS or get hit with fines, right? As a restaurant owner, keeping your accounting accurate means staying out of legal trouble. It makes sure you're following all the rules (like those Generally Accepted Accounting Principles (GAAP) everyone keeps talking about). So, no sleepless nights worrying about audits or penalties. Just smooth sailing and peace of mind.

In short, nailing your restaurant accounting means keeping your finances healthy, making smart decisions, and staying on the right side of the law. Win-win-win!

Best practices for efficient restaurant accounts management

Now that you’ve got a good grip on the basics of restaurant accounting and why it matters, let’s get into some tips and tricks to make your life easier. These best practices will help you keep things organized, dodge financial headaches, and make sure your numbers always add up.

Implement  top-notch accounting software for automation 

Don't waste time doing everything by hand (seriously, this isn’t the Stone Age.) Get yourself some quality accounting software that can automate tasks like invoicing, payroll, and expense tracking. It’ll save you hours and cut down on mistakes. More time for you to focus on running the show!

Use real-time reporting to monitor performance regularly

Keeping an eye on your numbers in real-time lets you spot issues before they become disasters. Think of it like checking your ingredients before a dinner rush. With real-time reporting via your restaurant POS system, you can see exactly how you’re doing every day, so there’s no nasty surprise waiting for you at the end of the month.

Review prime and labor costs closely 

Prime costs (food and labor) are the big ones that can make or break your restaurant’s finances. You need to watch these like a hawk or like a chef watching a soufflé rise. If food costs are high, maybe it’s time to renegotiate with suppliers or tweak the menu.

Control inventory management to minimise waste 

Food waste is literally throwing money in the trash (and nobody wants that.) Keep tight control of your inventory by using POS software that tracks what you have and what you need. It’ll help you reduce waste, save money, and keep your kitchen running efficiently. Plus, it’s better for the planet. Win-win!

Plan your accounting period for better tax management

Taxes don’t have to be terrifying if you plan ahead. Set your accounting periods strategically, and stay on top of your tax obligations throughout the year (so you’re not left scrambling to file returns at the last minute. Or worse, getting hit with penalties.) Good planning means no surprises from the tax man.

Consult a chartered accountant for professional advice 

Let’s be real: unless you’re a financial whiz, you’re gonna need some expert advice. A good accountant can help you navigate tricky financial waters, optimize your tax strategy, and keep everything compliant with the law. Plus, they’ll have answers for all those questions that make your eyes glaze over. 

Key financial reports for restaurant owners

Profit and loss (P&L) statement

The income statement (also known as your profit and loss statement) shows all your income and expenses over a set period. It’s like a financial report card for your restaurant. Use it to:

• See if you’re making a profit (if income is more than expenses)
• Guide business decisions and strategy (like finding ways to cut costs if you’re in the red)
• Calculate crucial financial ratios like your profit margin

Cash flow statement

This report tracks how money is flowing in and out of your restaurant. If you’re getting more cash in than going out, your cash flow is positive. If it’s the other way around, you’ve got negative cash flow.

Calculate cash flow monthly to see if you’ve got enough to keep things running or if you need extra funds. Break it down by operations, financing, and investing activities to get the full picture.

Balance sheet

The balance sheet is like a snapshot of your finances at a particular moment. It shows what your restaurant owns (assets like equipment and cash), what you owe (debts and bills), and your invested capital (equity).

Make sure the balance sheet balances using this simple equation: 

Assets = Equity + Liabilities. 

If it doesn’t add up, you’ve probably missed something or made a mistake. Use this report to spot trends over time. For example, check the debt-to-equity ratio with: 

Liabilities / Equity. 

It tells you how much debt you’re using versus your equity. A ratio of 0.85 is high, 0.56 is average, and 0.03 is low.

Restaurant Chart of Accounts

The chart of accounts (COA) is the blueprint for your financial record keeping. It organizes all your accounts into assets, liabilities, income, and expenses. Each account is labeled with a name, description, and a unique General Ledger (GL) code.

Be specific with your GL codes. Instead of just “Food & Bev,” break it down into categories like Food-Meat, Beverage-Liquor, etc. This helps you spot trends and find areas to improve more easily.

Revenue reports

Revenue reports tell you how much money you’re making over a certain period. For instance, a daily sales report shows how much you raked in for a single day.

Use these reports to:

• Drill into specifics (like beer sales vs. liquor sales)
• See if you’re making a profit by comparing sales to costs
• Spot sales trends and busy vs. slow periods
• Predict future sales based on past performance
• Improve your budgeting with historical data

Prime cost reports

Prime costs are your controllable expenses—basically, the cost of producing and serving your food, like labor and food costs.

A Prime Cost report helps you manage these costs and track trends. It’s crucial for keeping your restaurant profitable. Knowing your prime costs lets you keep an eye on fluctuations and implement cost controls as needed.

So, keep these reports in your toolkit to stay on top of your restaurant’s financial game. They’ll help you run a tighter ship and make smarter decisions.

How to choose the best accounting method for your restaurant

Picking the right accounting method is like choosing the perfect recipe—get it right, and everything runs smoothly. Here’s what to think about when choosing an accounting method:

• The restaurant’s size: Larger restaurants with complex operations might need more detailed financial tracking, while smaller spots might get by with simpler methods. Size does matter, after all!
• Your restaurant operations: Consider how your restaurant operates. Do you have inventory, multiple revenue streams, and lots of transactions or operating expenses? Your method should fit the complexity of your operations. There’s no need for a gourmet approach if you’re running a food truck for example.
• Financial needs: Think about what you need from your accounting system. Are you focusing on cash flow, profitability, or both? Choose a method that helps you meet your specific financial goals. It’s like picking the right tool for the job.

Here’s a rundown of different accounting methods, their pros and cons, and what type of restaurant might benefit from each:

Accrual basis accounting 

Accrual accounting records revenues and expenses when they occur, regardless of when the cash is actually received or paid.

Pros:

• Gives a more accurate picture of financial health by matching revenues with related expenses.

• Helps with long-term financial planning and analysis.

Cons:

• Can be more complex and require more time to maintain.
• Doesn’t show cash flow until money actually changes hands.

Best for:

• Larger restaurants with multiple locations or complex operations.
• Establishments that need to track accounts receivable and payable in detail, like fine dining spots or those with large inventories.

Cash basis accounting

This method records revenues and expenses only when cash is actually received or paid.

Pros:

• Simpler and easier to manage—less paperwork and fewer details.
• Provides a clear view of actual cash flow.

Cons:

• Doesn’t account for money that’s owed or receivables, which can be misleading.
• May not provide a complete picture of financial health.

Best for:

• Small, casual restaurants or food trucks with straightforward transactions.
• Places where cash flow is the primary concern and simplicity is key.

Double-entry accounting

This method involves recording each transaction in two accounts: a debit and a credit, keeping the accounting equation balanced.

Pros:

• Provides a comprehensive and accurate view of financial transactions.
• Helps prevent errors and fraud by ensuring every entry is balanced.

Cons:

• More complex and requires a solid understanding of accounting principles.
• Can be time-consuming to maintain and manage.

Best for:

• Restaurants of all sizes that need detailed and accurate financial reporting.
• Businesses with substantial transactions or those needing to track multiple accounts.

Hybrid accounting

This method combines aspects of accrual and cash basis accounting. It allows you to use accrual for some transactions and cash basis for others.

Pros:

• Flexible and can be tailored to fit different aspects of your operations.
• Allows you to manage cash flow while also tracking long-term financial health.

Cons:

• Can be confusing to implement and maintain properly.
• Might require more sophisticated software and oversight.

Best for:

• Medium to large restaurants with diverse financial needs.
• Businesses that want the benefits of both cash and accrual methods, like those with complex inventory and variable revenue streams.

Choose the method that fits your restaurant’s size, operations, and financial needs. Whether you’re running a small café or a bustling restaurant chain, the right accounting method will help keep your finances in check and your business running smoothly.

How Epos Now and its accounting apps can make restaurant accounting easy

Let’s be real—restaurant accounting can be a total pain. But with Epos Now and its integrated accounting apps, you can make it way less of a hassle. Here’s how we make your life easier:

• Syncs with accounting apps: Epos Now plays nice with QuickBooks and Sage, which means no more fiddling around with spreadsheets and manual entries. (Because who has time for that?) Your sales and expenses get automatically synced, so your books stay in check without you having to lift a finger.

• POS systems for every type of restaurant: Whether you’ve got a small café or a big-time restaurant, Epos Now has the right POS system for you. We’ve got retail POS systems for quick service and hospitality POS systems for full-service spots. Basically, we’ve got your back no matter what kind of place you’re running. Track all your sales and inventory with ease, and keep everything running smoothly.
• Real-time financial insights: Why wait for monthly reports when you can get real-time updates? With Epos Now, you can see your sales and financials as they happen (it’s like having a financial crystal ball.) Keep an eye on cash flow, check performance, and make smart decisions on the fly.
• Easy inventory and expense tracking: No more guessing games with your inventory or expenses. Epos Now’s POS software helps you keep tabs on what’s selling and what’s not. You’ll get all the info you need to manage costs and keep your restaurant running smoothly.

In a nutshell, Epos Now makes restaurant accounting way less of a hassle. With integrations for QuickBooks and Sage, tailored POS systems, real-time insights, and efficient purchase order management, you can keep your finances in check without breaking a sweat. So, you can get back to doing what you do best—serving up great food and keeping your customers happy.