A restaurant can be full every night and still lose money, because the margin lives in a few percentage points of food and labor. Good restaurant books are built to show those percentages quickly and accurately. Here is how it works, with worked examples.
How to record daily restaurant sales
The deposit in the bank is not your sales. Each day’s point-of-sale report breaks into food sales, beverage sales, discounts and comps, sales tax collected, tips charged to cards, gift cards sold and redeemed, and the payment types that settled it. Book a daily sales journal entry from that report, or let a POS integration for Toast, Square or Clover do it, and then match card deposits against it. Third-party delivery apps need the same treatment: gross sales, less commission, less adjustments, equals the payout.
| Line | Amount |
|---|---|
| Food sales | $3,800 |
| Beverage sales | $1,200 |
| Discounts and comps | ($150) |
| Net sales (income) | $4,850 |
| Sales tax collected (owed to the state) | $291 |
| Card tips (owed to staff) | $620 |
| Gift cards sold (owed to guests) | $100 |
| Total collected | $5,861 |
| Payment type | Amount |
|---|---|
| Card payments | $5,121 |
| Cash | $640 |
| Gift cards redeemed | $100 |
| Total paid | $5,861 |
Example only: a made-up business. The figures add up but belong to no real client.
Only $4,850 of the day is income. The card payments arrive in the bank a day or two later, less processing fees, which is why a deposit never equals sales. Book the fees as an expense when you match the deposit to the day.
Prime cost formula, with an Example
Prime cost is cost of goods sold plus total labor, including payroll taxes and benefits. It is the biggest controllable number in the business, and the formula is short:
- Prime cost = food and beverage cost + total labor cost
- Prime cost percentage = prime cost ÷ total sales
A commonly quoted benchmark is 60% to 65% of sales, with quick-service concepts a little lower. If prime cost is over 70%, there is rarely enough left to cover rent and still make a profit.
| Line | Amount | Share of sales |
|---|---|---|
| Food sales | $20,000 | 80% |
| Beverage sales | $5,000 | 20% |
| Total sales | $25,000 | 100% |
| Food and beverage cost | $7,750 | 31% |
| Labor, including payroll taxes | $8,250 | 33% |
| Prime cost | $16,000 | 64% |
Example only: a made-up business. The figures add up but belong to no real client.
How to calculate food cost percentage
Food cost for a period is opening inventory, plus purchases, minus closing inventory. Divide by food sales for the same period. Many operators aim for roughly 30% of food sales, higher or lower depending on the menu. The calculation only works with a physical inventory count, ideally weekly and at least monthly. Booking purchases as cost without counting inventory makes food cost swing with delivery dates instead of with what the kitchen actually used.
Track beverage cost on its own line. It behaves differently from food, and alcohol in particular is where unrecorded pours and comps show up first.
What should labor cost be?
A common rule of thumb is 25% to 35% of sales, including payroll taxes, depending on the concept and the level of service. Track it weekly, not monthly, and split it between front of house, back of house and management so you can see where the hours went. Many restaurants move to a four-week, thirteen-period calendar, because comparing a month with five weekends to one with four tells you nothing.
| Number | Common benchmark |
|---|---|
| Prime cost quick-service a little lower | 60% to 65% of sales |
| Food cost | Roughly 30% of food sales |
| Labor including payroll taxes | 25% to 35% of sales |
Rules of thumb, not targets for every concept. Sources are listed at the end of this guide; your own trend matters more than any benchmark.
How to record tips in QuickBooks Online
Tips belong to employees, not to the restaurant, so they are never revenue. Card tips collected are a liability until paid out through payroll or in cash. Tips are also wages for tax purposes: employees must report tips of $20 or more in a month to you by the 10th of the following month, and reported tips are subject to withholding. In QuickBooks Online:
- Create an other current liability account called Tips payable.
- In the daily sales entry, post card tips to Tips payable, never to sales.
- When tips are paid out, from the drawer or on the paycheck, clear Tips payable.
- Run tips through payroll either way. Most payroll apps, QuickBooks Payroll and Gusto included, have separate pay types for paycheck tips and cash tips, so tips are taxed and land on the W-2. Tips payable should come back to zero after each pay period.
Tips can also count toward the minimum wage. Under federal law, and in states that allow it, an employer can pay tipped staff a lower cash wage and take a tip credit for the rest, as long as wages plus tips reach at least the full minimum wage. That only holds up if tips are recorded employee by employee.
Two forms are easy to miss. A large food or beverage establishment, roughly one that normally had more than 10 employees on a typical business day across all its food and beverage operations, files Form 8027 each year to report receipts and tips. And many employers can claim the credit for FICA paid on tips on Form 8846, which is worth real money and is frequently missed. Getting restaurant payroll and tips right is mostly about getting this flow right every pay period.
A restaurant chart of accounts
A restaurant chart of accounts should mirror the percentages you want to watch. If food and beverage sales share one line, you cannot calculate food cost; if all wages share one line, you cannot see whether the kitchen or the floor ran over. A workable starting point:
- Income
- Food sales; Beverage sales (beer, wine and liquor on separate lines if you serve alcohol); Catering and events; Delivery app sales, gross; Discounts and comps (a negative income line)
- Cost of goods sold
- Food cost; Beverage cost; Paper and packaging
- Labor
- Front-of-house wages; Back-of-house wages; Management salaries; Payroll taxes; Benefits
- Operating expenses
- Rent and occupancy; Utilities; Repairs and maintenance; Smallwares; Card processing fees; Delivery app commissions; Marketing; POS and software
- Balances to watch
- Sales tax payable; Tips payable; Gift card liability; Payroll liabilities
- The test
- Every line should be one you want to see as a percentage of sales. If nobody ever looks at it, merge it.
Example only: a starting point for a made-up business, not a recommendation for yours.
Sales tax and delivery apps
Prepared food is taxable in almost every state that has a sales tax, often at a special meals rate, and the rules differ for alcohol, takeout and delivery fees. Marketplace laws mean delivery apps often collect and remit tax on their own orders, so those sales must be separated or you will pay the tax twice. Sales tax collected is a liability from the moment it is rung up.
Which reports should a restaurant owner see?
- Weekly: sales, food cost percentage, labor percentage, prime cost
- Monthly or per period: profit and loss with each line as a percentage of sales, balance sheet, cash position
- Always current: sales tax and payroll tax owed, gift card liability, supplier payables
Common restaurant bookkeeping mistakes
- Booking bank deposits as sales, which hides fees, tips and tax.
- No inventory counts, so food cost is a guess.
- Treating tips as income or ignoring them in payroll.
- Paying sales tax that a delivery platform already remitted.
- Mixing owner spending with restaurant expenses.
Frequently asked questions
What is a good prime cost percentage?
A commonly quoted benchmark is 60% to 65% of total sales, a little lower for quick service. Your own trend matters more: work it out weekly, and when it moves by a point or two, find out whether food, labor or sales caused it.
How do you calculate food cost percentage?
Take opening inventory, add purchases, subtract the closing count, and divide the result by food sales for the same period. Use a real count every time: without one, the figure tracks delivery days instead of what the kitchen used.
Are tips part of a restaurant’s revenue?
No. Tips belong to your staff. Card tips sit in a tips payable account until they are paid out, and they run through payroll as wages so they are taxed and reported. If tips show up in your sales, every percentage on your profit and loss is off.
How often should a restaurant count inventory?
Weekly if you can, monthly at the least, on the same day and at the same point in service each time. Without a count, food cost is just purchases, and it swings with delivery days instead of with what the kitchen used.
Do we owe sales tax on DoorDash and Uber Eats orders?
Often the app collects and remits it for you under your state’s marketplace rules, but not always and not for every fee. Check each app’s statements and your state’s rules, and keep app sales on their own line so tax is never paid twice.
Should a restaurant use a 13-period calendar?
Many do. Thirteen four-week periods give every period the same number of days and weekends, so this period compares fairly with the last one. Your tax year does not change; the periods are for managing the business.
Remote Bookkeepers keeps the books for restaurants and food businesses across the US: POS sales, tips, food and labor cost, and reporting built for thin margins. Want to know if your numbers hold up? Add us as your accountant for a free books review, and you get a written list of what we find in about 48 hours.