How do I account for food waste and spoilage?
Create a separate expense account for waste rather than burying it in cost of goods sold. Some businesses lump everything together, but then you can’t see how much you’re losing to spoilage versus what you’re selling. A dedicated waste account makes the problem visible so you can actually address it.
Set up categories that match how waste happens in your operation. Spoilage covers items that expire before use. Prep waste includes trimmings and unusable portions during food preparation. Overproduction is food prepared but never sold. Some operations also track theft and mistakes separately. The categories you choose depend on what’s meaningful for your business and where you suspect losses are occurring.
Keep a daily waste log. Every time something gets thrown out, someone writes down what it was and why. At the end of the week or month, add up the log and record an adjusting entry. You’ll debit your waste expense account and credit inventory for the total value lost. This moves the cost from your balance sheet inventory to your income statement where it affects profit.
Physical inventory counts are essential for catching what the logs miss. Count everything on a regular schedule, at least weekly for high-volume restaurants and food service operations. Compare your count to what your system says you should have. The difference is shrinkage from waste, theft, or recording errors. Investigate the gap rather than just adjusting the books and moving on.
Calculate your waste percentage by dividing total waste value by total food purchases. Industry benchmarks suggest 4% to 10% is normal, though this varies by operation type. If you’re seeing 15% or higher, something is wrong with ordering, storage, or prep practices.
Use the data to make changes. If the same items show up repeatedly on waste logs, you’re over-ordering or storing them improperly. If waste spikes on certain days, you might be overproducing for slower shifts. The accounting tells you there’s a problem. The daily logs tell you what the problem actually is.
Working with a bookkeeper for small business operations can help you set up tracking that captures waste without creating extra work for your kitchen staff. The goal is a system simple enough that people actually use it but detailed enough to give you actionable numbers every month.
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