Before You Start

This guide assumes you have an active POS system (like Toast or Square) and basic inventory tracking procedures in place.

Overview

40 min
Setup Time
Advanced
Difficulty
Daily
Maintenance

What You’ll Learn

  • How to accurately calculate Prime Cost (Food & Labor)
  • Setting up QuickBooks for ingredient-level COGS tracking
  • Accounting for waste, spoilage, and employee meals
  • Streamlining daily sales and tips reconciliation from your POS

1. Preparation Steps

To effectively track prime cost and inventory, you’ll need these specific accounts in your General Ledger:

Required Accounts

  • Food & Beverage Sales (Income)
  • Cost of Goods Sold - Food (Expense)
  • Cost of Goods Sold - Beverage (Expense)
  • Inventory - Food (Other Current Asset)
  • Inventory - Beverage (Other Current Asset)
  • Sales Tax Payable (Liability)

Optional (but recommended)

  • Waste & Spoilage (Expense)
  • Employee Meals (Expense)
  • Discounts & Promotions (Income Reduction)
  • Gift Card Liability (Other Current Liability)

2. Choosing Your POS Integration Method

Connecting your POS to your accounting system is critical. Two main approaches exist.

Method A: Manual Daily Entry / Spreadsheet Import

This involves manually entering data or importing summary spreadsheets.

Pros:
  • Zero upfront cost for integration.
  • Full manual control over entries.
  • Good for very small, low-volume operations.
Cons:
  • Extremely time-consuming.
  • High potential for human error.
  • Lacks real-time insights into prime cost.

Method B: Third-Party Integrators (Shogo, Orderly, Synder)

These services automate the data transfer from your POS to your General Ledger.

Expert Tip: For any restaurant with significant volume, a dedicated POS integration tool like Shogo or Orderly is essential. It ensures daily sales, tips, payments, and COGS data flow seamlessly, drastically reducing manual entry and improving accuracy.

3. Step-by-Step: Prime Cost Workflow

Visualizing the ideal workflow for prime cost management involves data flowing from your POS, through inventory tracking, and finally to your accounting software.

A diagram here would illustrate the flow: POS (Toast/Square) → Inventory System → Integration Tool → Accounting Software (QBO/Xero)

This shows how data should flow for effective restaurant accounting.

Here is a sample code block to show how a daily sales summary payload might look.

{
  "date": "2025-01-01",
  "gross_sales": 1500.00,
  "discounts": 50.00,
  "net_sales": 1450.00,
  "tips_collected": 200.00,
  "payments": {
    "credit_card": 1300.00,
    "cash": 150.00
  }
}

4. Setting Up Your Integration

  1. 1

    Connect POS to Integrator

    Authorize your chosen integrator (e.g., Shogo) to access your POS data (e.g., Toast, Square).

  2. 2

    Connect Integrator to GL

    Link the integrator to your accounting software (e.g., QuickBooks Online, Xero). Grant necessary permissions.

  3. 3

    Map Accounts (Sales, Payments, Tips)

    Carefully map sales categories, payment methods, and tips from your POS to the corresponding accounts in your GL.

  4. 4

    Map COGS and Inventory

    Configure how inventory purchases and usage flow into your COGS and Inventory asset accounts. This might involve integrating with an inventory management system.

Common Error: Tips Misclassification

Ensure tips collected by your POS are posted to a Liability account (Tips Payable), not Income. This avoids overstating revenue and ensures proper payroll handling.

5. Daily Reconciliation & Waste Tracking

Key Management Checklist

  • Review daily sales entries for accuracy against POS reports
  • Verify all payment types reconcile to bank deposits
  • Confirm tips payable match payroll liabilities
  • Track and record daily waste/spoilage figures
  • Perform weekly inventory counts and adjust COGS

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