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Wednesday, August 29, 2012

Food Cost Calculation Question - Sales Tax

Good Morning Joe,

I had a quick question for you. When calculating FOOD COST %, do you want to use gross food sales or Net food sales? Obviously Gross will give you a better percentage but I am just curious as to what is the norm.

Thank you,


Full Charge Bookkeeper

Thanks for the question Amanda!

When a restaurant's POS system records a transaction, the amount needed to pay the local tax authorities is calculated and automatically added to the check total. When you look at the recap, the total tax liability is summarized daily. This tax collected increases cash and receivables from credit card processing but does not increase sales. It is a liability.

In fact, an increase in any liability is favorable to cash flow in the short run.

You should eliminate the tax in your food cost calculations.

More importantly, restaurants would be wise to set aside the cash collected for sales tax so they can meet their quarterly obligation. Often, the amount collected is not available when it is time to file the quarterly return.

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