How to Do Bookkeeping for a Restaurant: An Industry Guide

I’ve worked with restaurants from Westheimer Tex-Mex spots to Montrose fine dining, and the bookkeeping is always a different animal. A consulting firm sends an invoice and waits. A restaurant rings up 300 transactions in a single dinner service, splits tips across a dozen employees, watches $4,000 of perishable inventory creep toward expiration, and has to figure out whether tonight’s special made money after factoring in yesterday’s spoiled shrimp.

Restaurant bookkeeping is regular bookkeeping with the volume cranked up and the margin for error dialed way down.

The restaurants that survive in Houston are the ones that know their numbers. Not vaguely. Daily. I’ve seen owners go under because they thought they were making money on paper but couldn’t explain where the cash went. And I’ve seen tight operations in EaDo and Midtown that knew their food cost to the dollar because they checked it weekly.

Here’s what I’ve learned from ten years of doing this.

Why Restaurant Bookkeeping Is Different

Every industry has quirks. Restaurants have all of them at once.

High transaction volume is the first thing. A Wednesday night at a decent place in Montrose might see 400 transactions before midnight. Most are under $40. They come in through the register, the card processor, the app, sometimes cash. You can’t see the pattern until you’re tracking them daily.

Inventory spoils. That’s real money walking out the back door. I had a client on Westheimer storing seafood like it was dry goods. By Thursday, half the Wednesday delivery had turned. He never knew until his food cost hit 42% and he asked why.

Tips create a tax mess that other industries don’t touch. The IRS watches restaurants for tip reporting. You have to track what employees report, withhold the right amount, pay your share of FICA, and file the forms correctly or you’ll get a letter.

Margins are brutal. I’ve seen restaurants operating on 4-6% net profit. One bad inventory count or a week of staff theft and suddenly you’re in the red.

Turnover happens constantly. I’ve worked with places in Heights that lose 30-40 people a year. Every one needs W-4s, I-9s, a final paycheck. That’s a system to manage, not a memory.

Sales tax gets weird too. In Texas, takeout and delivery are taxable. Catering might be. Packaged goods sold off-premise might not be. The Comptroller audits this.

Standard bookkeeping fundamentals apply. But restaurants need everything watched more often.

Daily Sales Reconciliation

Most businesses reconcile monthly. A restaurant that waits a month to review sales data is flying blind.

I had a client in EaDo last year who was checking his books every Friday. Found a $600 processing fee that wasn’t supposed to be there. Called the processor, got it reversed. Happened again two weeks later, same issue. If he’d waited until month-end, it would’ve cost him $2,400. Small checks matter.

Daily reconciliation means comparing what the POS says happened against what actually hit the bank.

Cash sales versus cash on hand is the first one. Register says $1,800 in cash sales. The drawer has $1,743. Where’s the $57? Voids? Comps? Employee comp tickets? Theft? The longer you wait to ask, the harder the answer gets.

Credit card sales versus actual deposits come next. The POS reports $8,400 in card sales. The processor deposits $8,148. Processing fees are usually clear. But chargebacks, reversals, and timing issues pop up. I’ve caught unauthorized refunds this way. Authorization is not settlement.

Third-party delivery platforms are their own mess. DoorDash takes a cut. Uber Eats takes a different cut. GrubHub takes another. Each deposits on a different day. Rates change. I’ve seen restaurants in Midtown completely miss that a platform dropped their commission code and started charging double fees. You catch that on day two, not day 32.

Daily reconciliation takes 15 minutes. Skip it for a week and you’re looking at an afternoon of confusion.

Tip Tracking and Reporting

Tips add bookkeeping complexity that most industries never deal with.

How Tips Flow Through the Books

Credit card tips hit the customer’s card and get distributed to employees. The restaurant receives the full amount, records it as tip liability, and pays it back out through payroll or a same-day cash-out. The money moves through your account but never stays there.

Cash tips go straight to the employee’s pocket. The business never touches them. But if an employee makes more than $20 in tips per month, they have to report it. That means you’re withholding income tax, Social Security, and Medicare on their reported tips. If they under-report and the IRS catches it on an audit, you’re still liable for the employer’s share.

Tip pools make this messier. A restaurant might pool tips from servers and redistribute them to bussers, bartenders, hosts. You have to track what each person earned, what they reported, and what got paid out. I’ve seen restaurants in Montrose with three different tip pools by shift. That requires real documentation.

The Tax Side

The IRS audits restaurants for tip reporting. Not sometimes. Regularly.

You have to withhold federal income tax and FICA on all reported tips. You pay the employer’s share of FICA on reported tips. That’s a payroll liability that shows up monthly.

For larger establishments, more than 10 employees on a typical business day, you file Form 8027. That form reconciles reported tips against a percentage of your gross receipts. If reported tips fall below 8% of sales, you allocate the difference. The IRS uses this to catch under-reporting.

Get this wrong and you’re facing back payroll taxes, penalties, interest, and potentially a harsh conversation with an IRS agent.

Inventory and Cost of Goods Sold (COGS)

For restaurants, inventory isn’t just a line item. It’s the biggest controllable expense on the P&L.

Food Cost Percentage

This is the metric that matters most. The formula is simple.

Food Cost % = (Beginning Inventory + Purchases - Ending Inventory) / Food Sales

Industry benchmarks are 28-35% for full-service. A steakhouse in Uptown runs higher than a taqueria on Navigation. Both need to know their number weekly, not monthly.

I had a client creep from 30% to 34% food cost over two months. On $50,000 in weekly sales, that’s $2,000 per week slipping away. Over a year, that’s $104,000 gone. Monthly checks don’t catch that in time.

Inventory Counting

Accurate food cost requires accurate counts. That means physically counting inventory weekly. I’m serious. Weekly.

Count the walk-in cooler, the freezer, the dry storage, the bar inventory, the paper goods and to-go supplies. Value everything at the last purchase price. That total is your ending inventory for this week and beginning inventory for next week.

Waste and Spoilage Tracking

Food waste hits your P&L whether you see it or not.

I’ve worked with restaurants that kept a waste log. They captured spoiled items, over-prep, kitchen mistakes, everything. Within a month, the pattern emerged. One prep cook over-portioned consistently. One delivery arrived half-spoiled. One menu item had a four-day shelf-life that nobody was watching. Tracking it separately let the owner fix it.

The Chart of Accounts for Restaurants

A restaurant’s chart of accounts needs way more detail than a regular small business.

Revenue accounts: Dine-in food sales. Dine-in beverage sales. Bar alcohol sales. Takeout and delivery. Catering. Gift card redemptions. Private events. Each separate.

COGS accounts: Food purchases. Non-alcoholic beverages. Liquor. Beer. Wine. Paper goods and disposables. Everything separate so you can see where the cost sits.

Labor accounts: Management salaries. Front of house wages. Back of house wages. Payroll taxes. Benefits. Workers’ comp. The detail matters for staffing decisions.

Operating expenses: Rent. Utilities. Equipment repairs. Smallwares. Linen service. Pest control. POS fees. Credit card processing. Delivery platform commissions. Marketing. Insurance. Licenses.

With this structure, you see real insight. “Food cost is up” becomes “seafood purchases jumped 18% but seafood sales were flat.” That’s actionable. You can have a conversation with your chef about portion size or menu mix.

Without it, you’re guessing.

POS Integration and Accounting Software

The POS system is where the financial story starts. How it connects to your accounting software determines whether bookkeeping takes an hour or a day.

What the POS Captures

Modern systems (Toast, Square for Restaurants, Clover) capture transaction detail. Item-level. Payment method. Tip amount. Voids. Comps. Discounts. Employee sales. Hourly patterns. All of it is there if you know where to look.

Connecting POS to Accounting

You’ve got three options.

Daily summary entries mean the POS creates a single journal entry that goes into your accounting software. Easy to do. You lose all the detail though. You won’t see the item breakdown, the voids, the refunds. Just one number per day.

Automated sync uses integration tools to push POS data into accounting automatically. Less manual work. But misconfigured syncs create errors that are hard to trace later. I’ve seen restaurants run for weeks with the commission codes mapped wrong. Everything got sorted wrong in the chart of accounts.

Restaurant-specific platforms like Restaurant365 or MarginEdge pull the POS, handle invoices, manage inventory, and generate reports. Costs more. Worth it if you’re managing multiple locations or complex operations.

Whatever you choose, the books need to show what was sold, how it was paid, what went to tips, and what the restaurant kept.

Payroll Complexity

Restaurant payroll is its own mess, separate from tip tracking.

Multiple Pay Rates

A server might work at $2.13 an hour (federal tipped minimum in Texas) during dinner, then work as a host at $12 an hour during lunch. You have to track hours by position, not just by name. A payroll system that doesn’t handle this gets the withholding wrong.

Overtime Gets Weird

Staff pick up shifts constantly. Anything over 40 hours in a week is overtime at 1.5x. But for tipped employees, the overtime rate calculation uses full minimum wage, not the tipped wage. I’ve seen owners get surprised by that and end up owing back pay.

The Turnover Grind

Five to ten people leave every month at a typical restaurant. Each one needs W-4s, I-9s, direct deposit paperwork. Each one gets a final paycheck due within six calendar days of termination in Texas. Track this with a system or you’ll miss deadlines and owe penalties.

Payroll Tax Deposits

Labor is usually 25-35% of sales. That’s a big liability. Most restaurants hit semi-weekly deposit schedules. Federal payroll taxes are due a few days after each payroll. Miss a deposit and penalties add up fast.

Sales Tax on Food and Beverage

Texas has no state income tax. It does have 6.25% sales tax. Add local, Houston hits 8.25%.

Taxable sales are everything sold for immediate consumption. Dine-in, takeout, delivery. All of it.

Exempt sales are a gray area. Packaged items sold without preparation might qualify as grocery and avoid tax. A restaurant selling bottled sauces or retail beverages for off-premise might not owe tax on those. You need to track taxable and exempt separately or you’ll owe back taxes.

Alcohol is its own thing. It’s subject to sales tax plus the Texas mixed beverage tax. Mixed beverages are taxed at 6.7% on gross receipts, plus 8.25% in sales tax. Beer and wine for on-premise get standard sales tax. Track these categories separately.

The Texas Comptroller audits restaurants. Underreporting sales tax, even accidentally, means back taxes, penalties, and interest. I’ve seen that bill get expensive fast.

Vendor Payments and Accounts Payable

Restaurants work with way more vendors than typical small businesses. A single location has 15-30 regulars. Food distributors. Beverage suppliers. Linen service. Cleaning products. Equipment guys.

Payment Terms and Cycles

Most food distributors run net-7 or net-14. Sysco, US Foods, and the regional guys deliver multiple times a week. A decent restaurant in Midtown or EaDo processes 40-60 invoices per week.

You verify quantities match what was delivered. You confirm pricing matches your contract. You code it to the right account. You schedule the payment so you hit the terms deadline.

Statement Reconciliation

Reconcile vendor statements monthly against what you recorded and what you paid. Pricing errors happen. Double-charges happen. Credits posted at random times. Catch it during reconciliation or it becomes your accepted cost.

Key Reports and Metrics

Beyond the standard profit and loss statement and balance sheet, restaurants track different numbers.

Prime cost is COGS plus total labor costs. Target is 55-65% of revenue. Above 65% and profitability gets nearly impossible.

Food cost percentage is weekly. The trend matters more than any single week.

Pour cost is the bar version of food cost. Good programs run 18-24%.

Labor cost percentage is total labor divided by revenue. Track it by shift and by department. That tells you where staffing is efficient and where it’s not.

Revenue per available seat hour (RevPASH) is total revenue divided by (seats times hours open). Shows whether you’re using the physical space efficiently.

Average check size by meal period and by server. Changes signal menu mix shifts or pricing problems.

These metrics come from the bookkeeping system. Without good books, you’re guessing on all of it.

Common Pitfalls

Treating all revenue as one number. I had a client in EaDo lump food, bar, delivery, and catering together. Couldn’t figure out why food cost looked bad. Turned out catering was running 18% food cost while restaurant was running 31%. He couldn’t see it until we separated the numbers.

Counting inventory on random days. If Thursday one week, Tuesday the next, your food cost for that period is garbage. Same day, same time, same method. Every single week.

Ignoring comps and voids. Free meals and voided tickets still cost you. A place with a 10% void rate is either hemorrhaging money to errors, training problems, or theft. You won’t know which until you look.

Reconciliation once a month. A restaurant doing $30,000-80,000 per week through a register, card processor, and three delivery platforms can’t wait 30 days. You’ll never find the error. Weekly or daily is standard for a reason.

Using a basic payroll system. Tipped employees, multiple rates, overtime, high turnover. Standard payroll software built for regular businesses creates mistakes. Use restaurant-specific payroll or you’ll pay penalties.

When the Complexity Outgrows DIY

Some owners handle their own books early on. A single location, hands-on owner, simple menu. Sometimes that works.

Complexity grows with success. A second location. A catering arm. A liquor license. Third-party delivery platforms. Each one multiplies the workload and the cost of screwing up.

I’ve talked to owners who knew they needed help when:

Food cost is unknown. Nobody calculates it, or somebody does it once a month.

Daily reconciliation isn’t happening. Sales are never matched against deposits.

Tip reporting feels uncertain. Nobody’s sure if the IRS math is right.

Payroll taxes triggered penalties. Missed deposits or under-withholds happened.

Vendor invoices pile up. Nobody verifies them before paying.

Tax filings are a nightmare because records are scattered.

The P&L doesn’t match what the owner feels is happening. The numbers don’t make sense.

Restaurant bookkeeping isn’t complicated because of advanced concepts. It’s complicated because of volume. Higher volume, thinner margins, relentless pace. The restaurants that survive are the ones that caught problems early. The ones that closed didn’t.

EZQ Group provides bookkeeping services for Houston restaurants and food service businesses, including daily sales reconciliation, tip tracking, inventory accounting, and POS integration. Contact us to discuss your restaurant’s bookkeeping needs.