Restaurant Bookkeeping: Accounting & Reporting

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  • 0:03 Restaurant Accounting
  • 1:03 Cost of Goods Sold
  • 1:57 Food Cost Percentage…
  • 4:15 Prime Cost
  • 5:27 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has taught college Management and Hospitality Management and has a Master's degree in Organizational Leadership and Management

Running a restaurant is more than just dishing out tasty food. Understanding prime cost, cost of goods, and revenues and expenses - and how they all relate to industry standards - is equally critical to a restaurant's success.

Restaurant Accounting

To all of his friends, Jacques is an amazing cook. His sauces and soufflés knocked his dinner guests' socks off. After thinking long and hard about his future, Jacques decides to open a small bistro.

With little more than a few signature dishes and secret ingredients, Chef Jacques opened Bistro Yum. Although he had immediate success with hungry diners waiting hours for a table, he was not making any money. Then, Chef Jacques learned a few lessons in restaurant accounting and turned his business from bland to boldly profitable. Let's follow Chef as he journeys through restaurant accounting.

It turns out, Jacques had the right recipes but did not know much about the accounting principles needed to maintain accurate books. Restaurant accounting is somewhat similar to the accounting principles in most businesses with a few twists. Checks and balances are needed to keep his business above water. Let's look at what Jacques needs to learn.

Cost of Goods Sold

Cost of goods sold, in this case, is a weekly accounting tool used to help an executive chef or kitchen manager calculate how much it costs the restaurant for the food and beverages it sells.

Here's the formula:

Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory

It works like this. On Monday, Jacques has $2,000 worth of products. Then, on Thursday Jacques orders another $3,000 in products to prepare for the weekend crowd. The following Monday, Jacques has $1,000 in inventory.

$4,000 (COGS) = $2,000 (beginning inventory) + $3,000 (new purchases) - $1,000 (ending inventory)

Food Cost Percentage Importance

Now that we know the cost of goods, we will use this number to calculate food cost percentage. Food cost percentage is the percentage of money spent on food. The percentage reveals how much the restaurant makes on each dish. Executive chefs and managers use this number to determine whether they are pricing dishes correctly. The industry average to achieve is between 30-35%.

Here's the calculation:

Food Cost Percentage = Cost of Goods Sold (COGS) / Total Sales

Let's look at an example:

  • Bistro Yum's total sales for the month of January was $12,000
  • Cost of goods sold was $4,000

33% = $4,000 (COGS) / $12,000 (total sales)

Chef Jacques is doing something right because his food cost percentage was well within industry standards. This means Chef Jacques is spending the correct amount of money on his tasty ingredients to remain profitable.

However, food cost is just the beginning. Chef Jacques must also look at labor costs, in other words, what he pays his staff. Staffing in the right amount means an excellent customer service experience as well as a healthy bottom line.

Labor cost is calculated as a total of:

  • Hourly Labor Cost = hourly rate * hours worked, and
  • Salary Labor Cost = salary / time period

Chef Jacques pays his servers $3.50 an hour. He has 4 servers who work 7 hours a day for 30 days a month. He also pays a manager a salary of $40,000 per year.

$2,940 = $3.50 * 840 (840 comes from 4 servers * 7 hours a day * 30 days) $3,333 = $40,000 / 12

Chef Jacques has a labor cost of $6,016 per month. We will need this number to calculate prime cost.

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