Common Restaurant Accounting Mistakes (And How to Fix Them)

Published on January 22, 2025 | 11 min read

Restaurant accounting isn't rocket science, but it's easy to make mistakes that cost you thousands—or worse, trigger an IRS audit. Most errors come from poor systems, not bad intentions.

This guide walks through the 15 most common restaurant accounting mistakes, why they happen, and exactly how to fix them.

Why Restaurant Accounting Is Different

Restaurants have unique challenges:

• High cash volume: More opportunities for errors and theft
• Inventory turnover: Food spoils; tracking is complex
• Tip reporting: Cash tips, credit card tips, tip pools—easy to mess up
• Thin margins: A 2% accounting error can wipe out your profit
• Multiple revenue streams: Dine-in, takeout, delivery, catering, bar

Mistake #1: Mixing Personal and Business Expenses

What it looks like

You use the restaurant bank account to pay your personal mortgage. Or you buy groceries with the business credit card.

Why it's a problem

• Your P&L is wrong (inflated expenses or revenue)
• IRS can disallow all deductions if they can't separate personal from business
• Makes audits painful

How to fix it

• Separate accounts: One checking account and one credit card for the business only
• Pay yourself a salary: Transfer a fixed amount to your personal account monthly
• Never mix: If you accidentally use the wrong card, immediately reimburse or document it as an owner draw

Mistake #2: Not Tracking Inventory

What it looks like

You record food purchases but never count what's in the walk-in. Your COGS is just "whatever we bought this month."

Why it's a problem

• Your food cost % is inaccurate
• You can't spot theft or waste
• IRS may disallow COGS deductions without inventory records

How to fix it

• Monthly inventory counts: Count everything on the last day of the month
• Use the formula: COGS = Beginning Inventory + Purchases − Ending Inventory
• Track high-value items weekly: Steaks, seafood, alcohol

Mistake #3: Recording Sales Incorrectly

What it looks like

You record gross sales (before discounts/refunds) instead of net sales. Or you include sales tax in revenue.

Why it's a problem

• Overstates revenue
• Messes up food cost % and other ratios
• Sales tax isn't your revenue—it's a liability you owe the state

How to fix it

• Record net sales: Gross sales − discounts − refunds − sales tax
• Track sales tax separately: It's a liability, not revenue
• Use your POS correctly: Most systems separate these automatically

Mistake #4: Ignoring Accrual vs. Cash Accounting

What it looks like

You're on cash-basis accounting but record a big catering deposit as revenue before you deliver the food.

Why it's a problem

• Cash basis: Revenue when you receive cash; expenses when you pay
• Accrual basis: Revenue when earned; expenses when incurred
• Mixing them = wrong profit numbers and tax issues

How to fix it

• Pick one method and stick to it: Most small restaurants use cash basis (simpler)
• If accrual: Record revenue when the meal is served, not when paid
• Consult your CPA: They'll tell you which is best for your situation

Mistake #5: Not Categorizing Expenses Properly

What it looks like

Everything goes into "Supplies" or "Miscellaneous." You can't tell how much you spent on food vs. cleaning supplies vs. marketing.

Why it's a problem

• Can't analyze where money is going
• Can't compare to industry benchmarks
• Makes tax prep harder

How to fix it

• Use consistent categories: Food & Beverage, Supplies, Utilities, Repairs, Marketing, etc.
• Match your P&L structure: Use the same categories every month
• Train staff: If someone else enters invoices, give them a category guide

Mistake #6: Forgetting to Reconcile Bank Accounts

What it looks like

You never compare your accounting records to your bank statement. Checks clear, fees hit, but your books don't match reality.

Why it's a problem

• You don't catch bank errors or fraudulent charges
• Your cash balance is wrong
• Auditors will flag this immediately

How to fix it

• Reconcile monthly: Compare your books to your bank statement line by line
• Mark cleared transactions: Check off each deposit and withdrawal
• Investigate discrepancies: Missing deposits? Duplicate charges? Fix them.

Mistake #7: Not Tracking Tips Correctly

What it looks like

You pay out cash tips but don't record them. Or you report credit card tips but not cash tips to the IRS.

Why it's a problem

• Underreporting tips is illegal and triggers audits
• You owe payroll taxes on tips (FICA)
• Your labor cost is understated if you don't include tip wages

How to fix it

• Track all tips: Cash and credit card, by employee
• Report to IRS: Use Form 4070 (employee tip report) and include in payroll
• Pay payroll taxes: You owe employer FICA on tips
• Use a tip tracking system: Many POS systems handle this automatically

Mistake #8: Treating Loans as Revenue

What it looks like

You take out a $50,000 loan and record it as revenue. Your P&L shows a huge profit, but it's not real.

Why it's a problem

• Loans are liabilities, not revenue
• Overstates profit
• You'll pay taxes on money you have to pay back

How to fix it

• Record loans as liabilities: They go on the balance sheet, not the P&L
• Deduct interest only: Loan interest is an expense; principal payments are not
• Track separately: Keep a loan amortization schedule

Mistake #9: Capitalizing vs. Expensing Incorrectly

What it looks like

You buy a $15,000 oven and deduct the full amount this year. Or you expense a $200 repair over 5 years.

Why it's a problem

• Repairs: Deduct immediately
• Improvements/equipment: Depreciate over time (or use Section 179)
• Getting this wrong = wrong profit and wrong taxes

How to fix it

• Repairs: Fixes that restore to original condition = expense now
• Improvements: Upgrades that add value = capitalize and depreciate
• Section 179: Lets you deduct equipment purchases immediately (up to $1.16M in 2024)
• Ask your CPA: They'll tell you which treatment to use

Mistake #10: Not Backing Up Records

What it looks like

All your invoices are in a shoebox. Your computer crashes and you lose everything.

Why it's a problem

• IRS requires you to keep records for 3–7 years
• No records = no deductions
• Fire, flood, or theft can wipe out years of data

How to fix it

• Go digital: Scan or photograph every invoice
• Cloud storage: Google Drive, Dropbox, or accounting software with cloud backup
• Organize by month/category: Easy to find when you need it
• Automate: Tools like Restro Manager capture invoices as images/PDFs automatically

Mistake #11: Paying Employees Under the Table

What it looks like

You pay cash wages and don't report them to the IRS. No W-2s, no payroll taxes.

Why it's a problem

• It's illegal
• Massive penalties if caught (back taxes + fines + interest)
• Employees can sue for unpaid benefits
• You can't deduct those wages

How to fix it

• Use a payroll service: Gusto, ADP, Paychex handle taxes automatically
• File all required forms: W-2s, 941s, unemployment taxes
• If you've been doing this: Talk to a CPA about voluntary disclosure (less painful than getting caught)

Mistake #12: Not Tracking Comps and Voids

What it looks like

You comp meals or void checks but don't record them. Your sales look lower than they should be.

Why it's a problem

• Comps and voids can hide theft
• Your food cost % looks higher (you "sold" food but didn't record the sale)
• You can't analyze true sales performance

How to fix it

• Require manager approval: Every comp/void needs a reason and manager PIN
• Track separately: Report comps and voids on your P&L
• Review weekly: Look for patterns (same employee, same items)

Mistake #13: Ignoring Sales Tax Compliance

What it looks like

You collect sales tax but forget to remit it to the state. Or you charge the wrong rate.

Why it's a problem

• Sales tax is not your money—it's the state's
• Late payments = penalties and interest
• States are aggressive about collecting

How to fix it

• Know your rate: State + local + special district taxes
• File on time: Monthly or quarterly (depends on your state)
• Set aside the money: Keep sales tax in a separate account so you're not tempted to spend it
• Automate: Many POS systems calculate and track sales tax automatically

Mistake #14: Not Reviewing Financial Statements

What it looks like

Your bookkeeper sends you a P&L every month. You glance at the bottom line and file it away.

Why it's a problem

• You miss trends (costs creeping up, sales declining)
• You don't catch errors (duplicate entries, wrong categories)
• You can't make informed decisions

How to fix it

• Review monthly: Spend 30 minutes with your P&L and balance sheet
• Compare to last month and last year: Look for changes
• Ask questions: Why did utilities jump 20%? Why is food cost up?
• Use our guide: How to Read Your Restaurant P&L

Mistake #15: Doing It All Yourself (When You Shouldn't)

What it looks like

You're the owner, chef, bookkeeper, and janitor. You're stretched thin and making mistakes.

Why it's a problem

• Accounting errors cost more than hiring help
• Your time is better spent on operations and growth
• A good CPA saves you more in taxes than they cost

How to fix it

• Hire a bookkeeper: $300–$800/month for basic bookkeeping
• Hire a CPA: $1,500–$5,000/year for tax prep and planning
• Use software: QuickBooks, Xero, or Restro Manager to automate data entry
• ROI: A good CPA typically saves 3–10x their fee in tax savings and avoided mistakes

Quick Accounting Health Check

Answer these yes/no questions:

• ☐ Do you have separate business and personal bank accounts?
• ☐ Do you count inventory monthly?
• ☐ Do you reconcile bank accounts monthly?
• ☐ Do you track tips and report them to the IRS?
• ☐ Do you have digital backups of all invoices?
• ☐ Do you review your P&L every month?
• ☐ Do you use a payroll service (not cash under the table)?
• ☐ Do you file sales tax on time?
• ☐ Do you work with a CPA?

Score:

• 7–9 yes: You're in great shape
• 4–6 yes: Room for improvement
• 0–3 yes: Urgent—fix these now

Action Plan (Start This Week)

1. Monday: Open a separate business bank account if you don't have one
2. Tuesday: Do a full inventory count and calculate COGS
3. Wednesday: Reconcile last month's bank statement
4. Thursday: Review your P&L and compare to last month
5. Friday: Schedule a call with a CPA if you don't have one

Conclusion

Most restaurant accounting mistakes aren't malicious—they're just the result of being busy and not having systems in place. The good news: they're all fixable.

Start with the big three:

1. Separate business and personal finances
2. Track inventory monthly
3. Review your P&L every month

Those three alone will prevent 80% of accounting headaches.

Want to automate invoice tracking and daily P&L updates? Try Restro Manager — vendors upload invoices via a secure link, you categorize them, and your books update automatically. No manual entry, no shoebox of receipts.