Restaurant accounting basics

By admin-faalNovember 9, 202610 min read

Restaurant accounting basics explained for UK owners: records, food and labour cost ratios, VAT and cash flow. Learn how to know your margins each month.

Restaurant accounting basics come down to four habits: record every sale, capture every cost, reconcile your records to the bank, and review your figures every month. Do these consistently and you know your margins, your tax bill and your cash position before problems arrive. This restaurant accounting guide explains each step in plain English for UK owners.

At fa accountants, we are specialist hospitality accountants working with restaurants, cafés and takeaways in London and across the UK. Below are the records, ratios and deadlines that matter most.

Table of contents

What are restaurant accounting basics?
How do you set up a restaurant accounting system?
What financial records does a restaurant need to keep?
How do you track restaurant revenue and expenses?
How do you calculate food cost percentage and labour cost percentage?
Which financial statements should a restaurant owner read?
How does VAT work for restaurants?
How do you manage restaurant cash flow?
What accounting mistakes do restaurants make most often?
When should you hire a restaurant accountant?
Frequently asked questions
Conclusion

1. What are restaurant accounting basics?

Restaurant accounting basics are the routines that turn daily trading into accurate numbers: recording sales, logging costs, reconciling accounts and producing monthly reports. Good accounting for restaurant business owners is less about tax forms and more about knowing, week by week, whether you are making money.

Restaurants are harder to account for than most shops. Stock goes off, margins are thin, takings arrive as cash, cards, delivery-app payouts and vouchers, and wages are a huge share of costs. That is why generic bookkeeping often misses what is really happening. Sound restaurant financial management means tracking the few numbers that drive profit, not drowning in data.

2. How do you set up a restaurant accounting system?

Choose cloud accounting software that is compatible with Making Tax Digital, connect it to your bank and your EPOS, and build a Chart of Accounts that matches how a restaurant earns and spends. A good restaurant accounting system takes a few hours to set up and saves days every quarter.

Build a restaurant-specific Chart of Accounts

The Chart of Accounts is the list of categories every transaction is filed under. Split sales into food, drink and takeaway or delivery. Split costs into Cost of Goods Sold (COGS), which is what you spent on the ingredients and drinks you sold, and Operating Expenses such as rent, utilities, marketing and insurance. Keep wages in their own section so labour is easy to measure.

Connect your EPOS System

Your EPOS System (electronic point of sale, the till and ordering platform) holds the most reliable sales data you have. When it feeds your software automatically, you avoid retyping figures and cut errors. Our EPOS accounting integration service does this for hospitality businesses.

3. What financial records does a restaurant need to keep?

You need records of every sale, purchase, payment and wage run, and you must keep VAT records for at least six years under HMRC rules. Solid restaurant financial records also protect you if HMRC opens an enquiry.

Daily Sales Records: end-of-day Z reports from the till, split by payment type and VAT rate.
Supplier Invoices: for food, drink, packaging and equipment, filed by supplier and date.
Payroll records: payslips, pension contributions, PAYE and tronc (tip and service charge) distributions.
Bank and card statements: including delivery-platform payout reports.
Stock count sheets: dated, signed and kept with your accounts.
Contracts and leases: rent, loans, equipment finance and licences.

HMRC sets out the rules on VAT record keeping on GOV.UK. Photograph paper invoices on the day you receive them. A crumpled invoice found in March is a lost VAT claim.

4. How do you track restaurant revenue and expenses?

Match your till figures to your bank deposits every day or week, and code every cost to the right category as it arrives. These two habits are the core of restaurant bookkeeping.

Revenue Tracking and POS Reconciliation

Revenue Tracking means recording sales by day, session and category. POS Reconciliation then compares the till report with what actually reached the bank. Card settlements arrive a day or two late, minus fees. Delivery apps take commission before paying you. If the totals do not agree, find out why that week. Cash shortages, voids and unrecorded discounts show up here first. Good restaurant revenue tracking also shows which days and menu items earn the most.

Expense tracking and Bank Reconciliation

Restaurant expense tracking works best when invoices are coded as they arrive, not in a monthly pile. Bank Reconciliation is the step where you tick each bank transaction against your records. Do it weekly. Unmatched items usually turn out to be missing invoices, duplicate payments or bank charges you did not know about.

5. How do you calculate food cost percentage and labour cost percentage?

Divide your cost of food by your net food sales for Food Cost Percentage, and your total staff cost by net sales for Labour Cost Percentage. Use sales excluding VAT in both calculations.

First work out COGS: opening stock, plus purchases, minus closing stock. This depends on regular Inventory Management, meaning a proper stock count at least monthly, weekly for high-value items such as meat and spirits.

Worked example (one week): opening stock £4,000, purchases £6,500, closing stock £4,300. COGS is £6,200. With net sales of £20,000, Food Cost Percentage is 31%. Wages including employer National Insurance and pension of £6,400 give a Labour Cost Percentage of 32%.

Measure	Formula	Typical UK target
Food Cost Percentage	COGS ÷ net sales	About 28% to 35%
Labour Cost Percentage	Staff costs ÷ net sales	About 25% to 35%
Prime cost	COGS + staff costs ÷ net sales	Around 60% to 65% or lower

These are common industry ranges, not rules. A fine-dining site and a pizza takeaway will sit in different places. What matters is your own trend and whether the combined figure leaves room for rent and overheads.

6. Which financial statements should a restaurant owner read?

Read three: the Profit and Loss (P&L), the Balance Sheet and the Cash Flow Statement. Together they show whether you are profitable, what you own and owe, and whether you can pay next month’s bills.

Restaurant profit and loss statement: sales minus COGS gives gross profit. Minus Operating Expenses gives net profit. Review it monthly against the same month last year.
Restaurant balance sheet: a snapshot of assets (cash, stock, equipment), liabilities (loans, VAT, supplier balances) and owner equity.
Cash Flow Statement: shows cash actually moving in and out, which can differ sharply from profit.

Our hospitality management accounts and hospitality financial reporting services present these figures per site so you can see what each month really made.

7. How does VAT work for restaurants?

Restaurants charge 20% VAT on food and drink eaten on the premises, and on hot takeaway food. Most cold takeaway food is zero-rated. You must register once taxable turnover passes £90,000 in a 12-month period, and file digital VAT Returns through Making Tax Digital compatible software.

Mixed supplies cause most errors, for example a meal deal with hot and cold items, or service charges. Our guide to VAT on food and drink covers the edge cases, and HMRC lists the current VAT rates. If you want it handled for you, see our hospitality VAT services.

8. How do you manage restaurant cash flow?

Forecast cash weekly, set aside VAT and PAYE as you trade, and time supplier payments to match takings. Restaurant cash flow management matters because profitable restaurants still fail when cash runs short.

Accounts Payable and Accounts Receivable

Accounts Payable is money you owe suppliers. Pay on the due date, not early, unless a discount justifies it. Accounts Receivable is money owed to you, such as event deposits, corporate bookings and unpaid delivery-platform payouts. Chase them as routinely as you pay bills.

Simple cash habits

9. What accounting mistakes do restaurants make most often?

The most common mistakes are mixing personal and business spending, skipping stock counts, ignoring reconciliations and leaving the books until year end. Each one hides a problem until it is expensive.

Using gross sales to calculate margins. VAT is not your income, so ratios come out too low.
Treating tips and service charges loosely. They have specific payroll and VAT treatment, and tronc schemes need correct handling.
Not tracking waste and staff meals. They inflate COGS without explanation.
Ignoring card fees and delivery commission. They quietly cut margin on every order.

10. When should you hire a restaurant accountant?

Hire one when bookkeeping starts costing you service time, when you add a second site, or when VAT and payroll feel risky. A hospitality specialist should do more than file returns: they should explain your numbers.

Our hospitality bookkeeping team keeps your records current. If HMRC raises questions, our HMRC compliance enquiry support is there to help.

11. Frequently asked questions

What is a good profit margin for a restaurant?

Many restaurants earn a net profit in the low to middle single digits as a percentage of sales, and well-run sites can do better. Your result depends on rent, location, menu and wages. Track your own margin monthly and compare it with the same month last year.

Can I do my own restaurant bookkeeping?

Yes, if you have time and keep to a routine. Cloud software makes restaurant bookkeeping basics manageable for a single small site. Many owners hand it over once VAT, payroll and multiple payment channels start eating into service hours or accuracy slips.

How often should I reconcile my accounts?

Reconcile at least weekly, and daily for cash takings. Frequent checks catch errors, missing invoices and cash differences while you can still trace them. Leaving it monthly means searching through thousands of transactions for one mistake.

How should tips and service charges be recorded?

Record them separately from sales. Tips paid to staff and service charges follow specific payroll and VAT rules, and a tronc scheme, where a person called a troncmaster shares them out, has its own tax treatment. Keep clear records of who received what.

Which accounting software suits a restaurant?

Choose software that supports Making Tax Digital for VAT and links to your bank and EPOS. Xero, QuickBooks and Sage are common UK options. The best choice is the one that integrates smoothly with your till and that you will actually use.

12. Conclusion

Restaurant accounting basics are simple to state: record every sale and cost, reconcile to the bank, watch food and labour percentages, and read your P&L, Balance Sheet and cash flow every month. Get the VAT treatment right, set cash aside for tax, and fix gaps before they grow. A specialist can lift the load so you can focus on service and the menu. To get your numbers clear and compliant, contact fa accountants today and speak to our hospitality team.