A Comprehensive Restaurant Bookkeeping Guide for Owners and Managers

 

Any restaurant aiming for success must maintain robust bookkeeping practices. Your financial records hold a wealth of valuable insights, including the impact of your sales strategies, the effectiveness of your budgets, and the overall profitability of your business model.

Restaurant bookkeeping helps you build a strong foundation for your financial future. Our article teaches you the basics of bookkeeping for restaurants, including what it is, what challenges it addresses, and how to maintain accurate and up-to-date financial records while navigating the pace and complexity of the restaurant industry.

What is bookkeeping?

Bookkeeping is the process of regularly recording, organizing, and summarizing a business’s financial transactions. By building a clear picture of their financial performance, bookkeeping helps businesses make informed business decisions, craft smart budgets, prepare taxes, and ensure regulatory compliance.

Basic bookkeeping tasks

Bookkeeping encompasses a broad range of activities, from recording transactions and reconciling accounts to generating financial reports. These tasks help keep financial data organized, accurate, and up to date. In restaurant bookkeeping, the most common tasks are:

• Recording daily financial transactions: Using POS systems, banking data, spreadsheets, cash counting, or daily sales logs to track all incoming and outgoing funds, including sales, purchases, payments, and receipts. Bookkeepers typically record these transactions in documents known as journals.
• Organizing transactions: The process of sorting accounts by account category. Bookkeepers will transfer journal entries into a document known as a general ledger.
• Managing inventory: The organized process of monitoring the quantity, usage, and restock schedules of available items.
• Managing accounts payable: Tracking, organizing, and paying bills to suppliers and vendors.
• Processing payroll: Calculating, recording, and paying employee wages, deductions, benefits, and taxes.
• Reconciling accounts: Ensuring the accuracy of internal financial records through comparisons with official bank statements.

Generating financial statements: Summarizing financial activity through bookkeeping financial statements like balance sheets, profit and loss (P&L) statements, and cash flow statements.

 

 

What makes restaurant bookkeeping different?

The multitude of industry-specific challenges restaurant operators deal with has a powerful impact on bookkeeping needs. Your bookkeeping practices need to accommodate high daily transaction volumes, perishable inventory, variable service staff payroll, and more.

To help you prepare for the complexities of restaurant bookkeeping, we’ll explore the key factors that make it unique and share helpful insights along the way.

High daily transaction volume

Restaurants deal with far more daily transactions than most other businesses, which makes bookkeeping uniquely demanding. While a freelance graphic designer might only record a few transactions each month, and an auto dealer may log just a handful of sales each week, a typical restaurant processes a steady flow of small purchases each day, whether from dine-in guests, takeout orders, or deliveries. It’s a fast-paced environment that requires careful, consistent record-keeping.

Perishable inventory

Another common challenge in restaurant bookkeeping is managing perishable inventory. With businesses that deal with non-perishable goods, tracking stock levels, controlling costs, and planning restocks is pretty straightforward.

Meanwhile, restaurants deal with spoilage, which leads to a number of bookkeeping complications:

• Inaccurate cost calculations: Factors like shelf life, seasonality, and yield variability make the cost of perishable goods volatile and difficult to predict, which can impact financial planning.
• Frequent restocking: The short shelf life of perishable goods forces restaurants to restock frequently, increasing the number of transactions bookkeepers need to record. .
• Spoilage and waste accounting: To get an accurate picture of business expenses, bookkeepers need to record costs like spoilage, waste, and overproduction, even if none yield profit.
• Complex inventory reconciliation: Restaurants need to keep a close eye on their perishable ingredients to make sure they’re still usable. Since these items can spoil quickly, maintaining accurate inventory records requires frequent monitoring.

Payroll complexity

Because restaurant work involves variable income and irregular schedules, restaurant payroll processing is significantly more complicated than in many other industries. Below are the main reasons why:

• Hourly wages and non-standard schedules: Most restaurant employees work for hourly wages on irregular schedules. To ensure payroll accuracy, employers need reliable time-tracking systems that can handle shift changes, overtime, and compliance with local labor laws.
• Variable pay rates: Some employees take on multiple roles at different pay rates. For example, an employee might wait tables for $13/hour on one day and work as a food runner for $10/hour on another. Payroll systems must accurately calculate pay based on these variable rates and apply correct overtime calculations where applicable.
• Tip credit: Some states allow restaurants to pay tipped workers below minimum wage by claiming tip credits. Employers must closely monitor employee tip income to ensure total hourly earnings meet or exceed the applicable minimum wage. If reported tips fall short, employers are responsible for making up the difference.
• Tip pooling: Many restaurants implement tip pooling, where tips are shared among eligible staff, such as bussers and hosts. Employers must calculate and distribute pooled tips fairly, and ensure compliance with federal and state laws—particularly those that prohibit managers from participating in the pool.
• Tipped wage tax complications: The IRS expects employee-reported tips to total at least 8% of gross sales (excluding non-tippable items like takeout). If reported tips fall short, employers risk losing FICA tip credit, which is a tax credit for the employer’s share of Social Security and Medicare taxes paid on tip income. They must also pay the difference to their employees.
• High turnover: The average annual restaurant employee turnover rate in the United States is 79.6%, meaning that about four to five restaurant employees leave their jobs in one year. Many restaurants also depend on student workers, part-time workers, and seasonal workers. The fast-paced staffing changes lead to frequent onboarding and offboarding in payroll systems, a higher volume of tax documentation updates, irregular labor cost-tracking, and increased payroll administration.

How to do restaurant bookkeeping

Though maintaining restaurant books is a tedious task, it’s completely possible to do it yourself. We discuss the key steps of restaurant bookkeeping below, while also providing tips for restaurant-specific concerns.

Create a chart of accounts

You should start your bookkeeping journey by creating a chart of accounts (COA), which is a document listing all accounts your business manages, organized by account type. This shows owners, managers, and stakeholders where money comes from and goes. For restaurants, the COA is an especially helpful reference for the many moving parts of a business.

 

The COA typically consists of five sections, each corresponding to the five main account categories used in bookkeeping: assets, liabilities, equity, revenue, and expenses. However, some restaurants choose to separate COGS from expenses for greater clarity.

 

What are the five main account categories?

• Assets: This is an account category encompassing all resources owned or controlled by the business. Examples include cash, inventory, equipment, and property.
• Liabilities: This is an account category covering all business debts, such as accounts payable, loans, and lines of credit.
• Equity: This account category represents all funding from owners, partners, and investors. Examples include owner’s equity, capital contributions, and retained earnings.
• Expenses: This account category lists all the money the business spends to generate revenue. Examples include rent, wages, utilities, and COGS.
• Revenue: This account category reports all money the business earns.

Each category gets its own section, and each section contains a list of corresponding accounts. While there is no strict format, the standard COA entry will include columns for the account number, description, account type, and corresponding financial statement.

• Number: A unique numeric code assigned to each account for easy identification. The first non-zero digit in this number corresponds to the entry’s account type. Typically, 1 refers to assets, 2 refers to liabilities, 3 to equity, 4 revenue, 5 to COGS, and 6 to expenses.
• Description: This is more or less the name of the account. It identifies the account’s purpose.
• Account type: Whether the account falls under assets, liabilities, equity, revenue, COGS, or expenses.
• Financial statement: Identifies which financial statement this account is relevant to. Asset, liability, and equity accounts are relevant to the balance sheet, while revenue, COGS, and expense accounts are relevant to the P&L statement.

Number	Description	Account Type	Financial Statement
1-01	Cash on hand	Assets	Balance sheet
1-02	Checking account	Assets	Balance sheet
1-03	Inventory – Food	Assets	Balance sheet
1-04	Inventory – Beverages	Assets	Balance sheet
1-05	Kitchen equipment	Assets	Balance sheet
2-01	Accounts payable	Liabilities	Balance sheet
2-02	Sales tax payable	Liabilities	Balance sheet
3-01	Owner’s equity	Equity	Balance sheet
4-01	Food sales	Revenue	P&L statement
4-02	Beverage sales	Revenue	P&L statement
5-01	Cost of food sold	COGS	P&L statement
5-02	Cost of beverages sold	COGS	P&L statement
6-01	Wage expense	Expense	P&L statement
6-02	Rent expense	Expense	P&L statement
6-03	Utilities expense	Expense	P&L statement
6-04	Marketing expense	Expense	P&L statement

For restaurant COAs, comprehensiveness is crucial. Identifying all possible types of accounts helps you paint a clearer picture of where money comes from and what you spend it on. For example, creating separate COGS accounts for food and beverages allows you to track these expenses separately, which will later help you narrow down which menu items are more profitable.

If you’re not using accounting software, you can manually build your COA using a spreadsheet tool like Excel or Google Sheets. If you are using accounting software, however, it will typically generate your COA automatically based on your transactions from synced accounts, such as bank accounts, credit cards, and POS systems. Most accounting software will let you add or remove accounts as needed.

Record daily transactions

After making a COA, the next step in restaurant bookkeeping is logging your day-to-day transactions. For users of accounting software, this task is easy. All you need to do is connect your software with your main sources of financial information. This allows you to generate journal entries for your transactions automatically.

For restaurants, your main sources of information are:

• Bank accounts
• POS systems
• Credit cards
• Payroll software
• Invoicing software

However, if you’re not using accounting software, you need to track things manually. This means recording journal entries as transactions occur, or transferring information from documents to your journals.

Key source documents include:

• Bank statements
• Sales reports from POS systems
• Credit card statements
• Payroll reports
• Receipts
• Invoices

Double entry bookkeeping

As a restaurant operator, it’s best to record transactions using double-entry bookkeeping. This is a method of recording transactions that creates two entries for each transaction: one representing the debit side, and another representing the credit side.

 

 

A journal entry will consist of the following columns:

• Date: When the transaction occurred
• Account title: The name of the account
• Reference number: An identification number
• Debit: The amount debited
• Credit: The amount credited

At the bottom of each entry, you record a description of the transaction.

Here is an example of a journal entry for a restaurant recording a rent payment.

Date	Account title	Ref	Debit	Credit
1-01-25	Rent Expense		$300
1-01-25	Cash			$300
	To record a rent payment

Because the transaction increases expenses, the bookkeeper records it as an expense debit. In turn, because it decreases cash, it counts as a cash credit.

Typically, you create separate journals for different types of transactions, such as sales, cash receipts, and purchases. By grouping similar transactions together, you make your financial activity much easier to understand.

Organize transactions

Journals let you log your transactions in chronological order. However, this makes your financial information difficult to locate. If you want your financial information easier to parse, you need to summarize all journal entries in a general ledger.

As with other accounting documents, accounting software will typically generate general ledgers automatically. However, it still helps to understand what goes into the manual process.

To build a general ledger, you need to create tables for each individual account. The tables follow the order below:

• Assets
• Liabilities
• Equity
• Revenue
• COGS
• Expenses

Each table will also contain the following components:

• Account name
• Account number, as listed in the COA
• Date of transaction
• Description of transaction
• Transaction reference number
• Amount debited in the transaction
• Amount credited in the transaction

To post a journal entry to your general ledger, you must first identify the account it belongs to. Then, copy the journal information into the appropriate ledger table.

Let’s use the journal entry example above.

Date	Account title	Ref	Debit	Credit
1-01-25	Rent Expense		$1,500
1-01-25	Cash			$1,500
	To record a rent payment

If we were to post this journal entry, we would need to find the respective tables for rent expenses and cash. This gives you the following:

Date	Description	Ref	Debit	Credit
Account Name: Cash			Account No: 1-01
1-01-25	Payment for rent			$1,500

 

Date	Description	Ref	Debit	Credit
Account Name: Rent expense			Account No: 1-01
1-01-25	Payment for rent		$1,500

Once you’ve posted all transactions to their respective accounts, you need to calculate each account’s final balance. Typically, you make this calculation at the end of the accounting period. This gives you the value of each account for that period.

Here is an example of a general ledger table for the cash account.

Date	Description	Ref	Debit	Credit
Account Name: Cash			Account No: 1-01
1-01-25	Beginning balance		$10,000
1-01-25	Rent payment			$1,500
1-02-25	Utilities payment			$500
1-03-25	Food inventory purchase			$2,000
1-05-25	Cash sales		$5,000
	Total Cash		$11,000

Because your debits equal $15,000, and your credits equal $4,000, you get a balance of $11,000 at the end of the accounting period.

Reconcile accounts

Account reconciliation is the process of comparing your internal bookkeeping records with official documents from financial institutions. The most common type of account reconciliation is bank reconciliation, which checks whether the transactions on your general ledger line up with the transactions on your bank account. This ensures that your records are accurate, sparing you the potential consequences of misreported income, missed payments, or cash shortages.

Performing account reconciliation involves a few simple steps. These are:

1. Collect the relevant documents for the account you want to reconcile. For example, a restaurant seeking to reconcile its bank account should print its bank statements.
2. Compare your account records with your internal records and identify any potential discrepancies. Examples of common errors include typos, missing entries, and duplicate entries.
3. Determine the cause of the discrepancy. More often than not, the error will come from your end rather than the external account. You can use other documents, such as receipts and invoices, to confirm information. For example, if your bank statement shows a transaction you did not record, you can look for receipts to prove it really occurred.
4. Amend the discrepancies. If you are using accounting software, you will have the option to add, remove, or correct transactions manually. If you are logging transactions manually, you can create another journal entry to correct your balances or write a note about the error on your ledger.

To illustrate, here’s an example of how account reconciliation works. Let’s say Company A discovers that its bank balance is $300 smaller than its cash account balance. Their bank statement shows a balance of $1,000, while their general ledger shows an account balance of $1,300.

Company A compares its bank statement with its journal entries and discovers that it failed to log a $300 utility bill payment. It checks its receipts to ensure that the transaction really occurred, then adds the transaction to its accounting software journal.

Most businesses reconcile their accounts once a month. But with the high volume of transactions restaurants handle, the chance of committing an error is greater. That’s why it’s a good idea to reconcile at least once every two weeks, and even more often if your transaction volume is especially high.

Generate financial reports

Financial reporting is one of the most impactful parts of restaurant bookkeeping. The different financial statements reveal the different components of your restaurant’s financial health, namely book value (balance sheets), profitability (P&L statements), and liquidity (cash flow statements).

Balance sheets summarize the balances of all assets, liabilities, and equity at a given point in time, revealing the book value of a business. You can use balance sheets to evaluate your financial standing. Below are examples of useful information you can draw from balance sheets:

• Working capital: This is the difference between your current asset balance and your current liability balance. It shows you how much money you will have left after paying off all loans.
• Debt-to-asset ratio: This is the ratio of your debts to your assets. It represents the percentage of your assets that rely on debt for financing.
• Debt-to-equity ratio: This is the ratio of your debts to equity. It shows you whether your business is more reliant on borrowed money or shareholder investments.

P&L statements summarize all income and expenses within a given timeframe (typically one accounting period). By comparing revenue against spending, it shows how effectively a restaurant can generate the money it needs to operate. Examples of useful information you can draw from P&L statements are:

• Net profit margin: The ratio of net profit to total revenue. This shows you how much money remains after covering COGS, operating expenses, non-operating expenses, and tax.
• Revenue growth rate: This is the ratio between a revenue increase (or decrease) within a given period and the revenue of the previous period. It shows you how effective your revenue growth attempts are.

Cash flow statements summarize all cash inflows and outflows from operations, investing, and financing activities over a given timeframe. The cash flow statement helps you evaluate your restaurant’s liquidity, flexibility, and efficiency in generating cash. Useful cash flow metrics include:

• Operating cash flow: This is the difference between your net income and your non-cash expenses plus changes in working capital. It reveals how much money your business generates from core operations.
• Cash flow margin: This is the ratio of your operating cash flow to your revenue. This shows you how efficiently your business generates cash.

Users of accounting software can generate statements automatically. If you prefer manual bookkeeping, you can use financial report templates to guide yourself through the process of transferring ledger information.

Streamline restaurant bookkeeping with 7shifts

Effective restaurant bookkeeping helps you establish a strong foundation for other financial management tasks. It keeps your records accurate and up-to-date, giving you clean information to work with before you begin crafting budgets, forecasts, and other financial plans.

7shifts can help streamline bookkeeping further by automating supplementary bookkeeping tasks, such as payroll processing, tip management, and time-clocking. Its integrations with popular accounting software like QuickBooks allow you to transfer useful data like timesheet hours, payroll details, and sales data to ensure accurate bookkeeping and efficient workflows.