Restaurant Bookkeeping: How to Set Up Your Books

A restaurant’s books follow the same rules as any small business, but five things have to be set up differently or the P&L is wrong: daily sales from the POS, a chart of accounts built around food, beverage and labor, a prime cost line, cost of goods from inventory counts, and tips recorded as a liability. This guide walks through each one in the order you would set them up, with a free chart of accounts you can import into QuickBooks Online.

If you would rather not do it yourself, this is what our restaurant bookkeeping service runs every month. For what the work typically costs, see how much bookkeeping costs for a small business.

How do you record daily sales from the POS?

Record one journal entry per day from your POS sales summary (Toast, Square, Clover and most others have one). Don’t import individual tickets. The daily entry records sales by category, discounts and comps, sales tax collected, card tips, gift card activity, and how the money came in.

Here is a balanced example for one day. The figures are hypothetical.

Three things make this work:

1. Clearing accounts for each tender. Card payments land in a clearing account, not the bank. When the processor deposits the money a day or two later, net of fees, you move it out of clearing to the bank and book the fee to Card Processing Fees. The clearing account should return to zero; anything left over is a missing deposit or an unrecorded fee. Delivery apps work the same way, with their commission booked as an expense.
2. Sales recorded gross. Record the full menu price in sales and the discount separately, so you can see how much you give away each month.
3. A cash count against the POS. The cash drawer should match the POS cash total. Book any difference to Cash Over and Short so it is visible instead of buried.

What does a restaurant chart of accounts look like?

The rule is that sales and cost of goods use the same categories, so each one has a margin you can read. If liquor sales are their own account, liquor cost is too. Categories that matter for sales tax or, in Texas, mixed beverage tax (liquor, beer, wine) should also be split, because the returns need them separately.

Download the restaurant chart of accounts (CSV, free, no email required)

The file has about 60 accounts with the columns QuickBooks Online’s import asks for: Account Number, Account Name, Type and Detail Type. In QuickBooks, go to Settings, then Import data, then Chart of accounts, and map the columns (Intuit’s import steps). It leaves out the accounts QuickBooks creates on its own, such as Accounts Payable, Undeposited Funds, Sales Tax Payable, Retained Earnings and your equity accounts, so you don’t end up with duplicates.

Track sales by channel (dine-in, takeout, delivery apps, catering) with QuickBooks Classes or Locations rather than more income accounts. That way the category accounts stay clean for tax returns and you can still run a P&L by channel.

How should a restaurant P&L be laid out?

Put cost of goods and labor at the top, add a prime cost line, and show every line as a percent of sales. The layout below is the one restaurant operators and lenders expect. Figures are a hypothetical month.

Read food cost against food sales and beverage cost against beverage sales, not against total sales; that is why the table notes 30% and 25% next to them. Prime cost is the number to watch each month. A common industry rule of thumb is to keep it at or below about 60 percent of sales. This example is above that, which points to labor.

QuickBooks won’t print a prime cost line by default. Group Cost of Goods Sold and the labor accounts in a custom report, or add the line in the monthly report package you or your bookkeeper send.

How do you calculate cost of goods sold from inventory?

Purchases are not cost of goods sold. What you used is:

Beginning inventory + purchases − ending inventory = cost of goods sold

During the month, code every vendor invoice to the matching cost account (Food Cost, Liquor Cost and so on). At month-end, count inventory and post one adjustment so the inventory account equals the count. In this example inventory went up by $1,000, so the entry debits Food Inventory $1,000 and credits Food Cost $1,000. Do the same for each beverage category.

Count on the same day each month, use the same unit costs your vendors charge, and count liquor by the bottle and partial bottle. Skipping a count is the most common reason a restaurant’s food cost swings 5 points from one month to the next.

How do you record tips and payroll?

• Card tips are a liability. The daily entry credits Tips Payable. When tips are paid out, in cash at the end of a shift or on the next paycheck, debit Tips Payable. If the account doesn’t return to zero after payroll, tips are being under- or over-paid.
• Cash tips are reported by employees. Employees must report cash tips of $20 or more in a month to you by the 10th of the following month, and you withhold income tax and the employee’s share of Social Security and Medicare on reported tips (IRS tip recordkeeping and reporting).
• Service charges are not tips. A mandatory charge, such as an automatic 18% on large parties, is restaurant revenue, and the part paid to staff is wages. A payment is a tip only if the customer chooses to pay it and decides the amount (same IRS page).
• Book payroll from the provider’s report. Record gross wages by department (kitchen, front of house, management), employer payroll taxes and benefits, and clear net pay and tips paid through payroll against the bank and Tips Payable.

Two tax items come straight out of tip records: the FICA tip credit, an employer credit for Social Security and Medicare taxes paid on tips (Form 8846), and, for larger restaurants, the annual tip report on Form 8027. Clean tip accounts make both easy to prepare.

How does sales tax work for restaurants?

Most states tax restaurant meals, so the POS charges sales tax on most sales and the daily entry credits Sales Tax Payable. Each month or quarter, the balance in that account should equal the tax on your return. If it doesn’t, a POS item is set up with the wrong tax setting.

Rules vary by state. In Texas, for example:

• The state rate is 6.25 percent and local taxes can add up to 2 percent, for a maximum of 8.25 percent (Texas Comptroller Pub. 94-105).
• Ready-to-eat food is generally taxable even when sold to go, while bakery items sold without plates or utensils are not (Texas Comptroller Pub. 94-117).
• Voluntary tips aren’t taxed, and a mandatory gratuity of 20 percent or less isn’t taxed if it is labeled as a gratuity and paid only to the staff who serve (same publication).
• Restaurants and bars with a mixed beverage permit also file two monthly Texas mixed beverage tax returns on alcohol sales. That is why the chart of accounts splits liquor, beer and wine.

What’s on a restaurant month-end checklist?

Work through it in this order. With a daily sales entry already in place, most months close in a few hours.

1. Confirm every day has a sales entry and that each matches the POS sales summary for that day.
2. Clear the tender accounts. Card processor clearing and delivery app receivable should be at or near zero, with deposits and fees recorded.
3. Reconcile every bank and credit card account to the statement.
4. Enter all vendor invoices for the month, coded to the right cost account, including ones not yet paid.
5. Record payroll for every pay date in the month and check that Tips Payable cleared.
6. Count inventory on the last day and post the inventory adjustments.
7. Tie out liabilities: sales tax payable to the return, gift card liability to the POS gift card report, customer deposits to upcoming events.
8. Record depreciation and loan interest, if you post them monthly.
9. Review the P&L as percentages. Check food cost, beverage cost, labor and prime cost against last month and the same month last year, and look into anything that moved more than a point or two.
10. File and pay sales tax and any mixed beverage returns. Check the small business tax deadlines for the federal dates.

Bookkeeping is the monthly record; accounting and tax work are built on top of it. If you’re not sure where the line falls, see bookkeeping vs. accounting vs. tax preparation.

When should you hand restaurant bookkeeping off?

Most owners hand it off when daily entries and deposit matching start slipping behind service, usually once there are staff, a delivery app or two, and payroll. The usual signs are a card clearing account that never returns to zero, a food cost percentage that jumps month to month, and sales tax returns filed from the POS report instead of the books.

We set this up and run it every month in your own QuickBooks Online. Books are ready by the 15th on the Bookkeeping and Bookkeeping & Tax plans, or that month’s fee is refunded. See what restaurant bookkeeping with AutoTaxPilot includes, or book a free 15-minute call to get your price.