Key takeaways
- The profit and loss statement (P&L) shows whether the outlet made money over a period. The balance sheet shows what the business owns and owes on one date. The cash flow statement shows where the cash actually went.
- Prime cost, meaning food and drink cost plus labour, is the part of the P&L you can influence most week to week.
- A restaurant balance sheet usually carries rental deposits, kitchen equipment, stock, GST collected but not yet paid, and loans.
- Profit and cash differ because of timing: equipment bought up front, loan repayments, GST held for IRAS, and card settlements that arrive days later.
- Review all three statements every month, using sales from the POS and costs from the accounting system, not just once a year for tax.
All figures in this guide are hypothetical and are used only to show how the statements work. They are not benchmarks. Your accountant should prepare and sign off your actual accounts.
Ask an owner how the restaurant is doing and you will usually hear about covers and daily sales. Those numbers matter, but they do not tell you whether the outlet is profitable, whether it can pay next month’s rent, or how much it really owes. For that you need three documents: the profit and loss statement, the balance sheet and the cash flow statement. This guide reads each one from an outlet owner’s point of view, explains how they connect, and ends with a monthly routine. For margin benchmarks and levers, see our separate guide to restaurant profit margins in Singapore; this article focuses on reading the statements themselves.
The three statements in one picture
Think of the three statements as answers to three different questions:
| Statement | Question it answers | Covers |
|---|---|---|
| Profit and loss (P&L), also called the income statement | Did we make money? | A period, such as a month or a year |
| Balance sheet | What do we own and owe, and what is left for the owners? | One date, such as 30 September |
| Cash flow statement | Where did the cash come from and where did it go? | The same period as the P&L |
They are linked. The profit for the month flows into the owners’ equity on the balance sheet. The cash flow statement starts from that profit, adjusts for items that are not cash (such as depreciation) and for changes in balance sheet items (such as stock and GST payable), and ends with the change in the bank balance. If you understand those links, you can spot problems that no single statement shows.
Reading a restaurant profit and loss statement line by line
A restaurant P&L statement usually runs from top to bottom like this:
- Sales (revenue). Food, beverage and other income, shown net of GST if you are GST-registered. IRAS says the current GST rate is 9% and registered businesses must charge and account for it (IRAS), so the GST you collect is not your income. Service charge treatment should follow your accountant’s policy; our guide to service charge and GST explains the basics.
- Cost of sales. Food and beverage cost: opening stock plus purchases minus closing stock. Some operators also put packaging here.
- Gross profit. Sales minus cost of sales.
- Labour. Wages, CPF, levies, bonuses and staff meals. Some P&Ls put labour below gross profit, others include it in cost of sales. Be consistent.
- Occupancy. Rent, service charge from the landlord, utilities and property-related costs.
- Operating expenses. Card and platform commissions, marketing, repairs, cleaning, pest control, software, insurance and professional fees.
- EBITDA or operating profit. Profit before interest, tax, depreciation and amortisation. Many owners use this to compare outlets.
- Depreciation. The renovation and kitchen equipment cost spread over their useful life.
- Interest and tax. Loan interest and income tax.
- Net profit. What is left for the owners.
When you read a profit and loss for a restaurant, look at each line as a percentage of sales as well as in dollars. A dollar figure that rises may be fine if sales rose faster; a percentage that creeps up month after month is the warning sign.
Prime cost: the two lines that decide the P&L
Prime cost is food and beverage cost plus total labour cost. Together they are usually the largest controllable costs in a restaurant, and both move with daily decisions: portion sizes, supplier prices, waste, rostering and overtime. Rent is large too, but it is fixed for the length of the lease.
Rather than rely on a generic target, set your own prime cost target in your annual budget, then compare each month’s actual against it. When prime cost is above target, split it: is food cost up because of a supplier price rise, waste or unrecorded comps? Is labour up because of extra shifts or lower sales on the same roster? Our guides to food cost and labour cost go deeper on each side, and restaurant KPIs shows how prime cost sits alongside other weekly numbers.
Food cost on the P&L is only accurate if you count stock at month end. Purchases alone overstate cost in a month when you stocked up and understate it in a month when you ran stock down.
What the balance sheet shows for an outlet
The balance sheet is a snapshot on one date. It lists assets, liabilities and equity, and assets always equal liabilities plus equity. For a typical restaurant you will see:
- Cash at bank and cash floats.
- Receivables. Card, e-wallet and delivery platform settlements not yet received, and any corporate accounts owed to you.
- Stock. Food, beverages and packaging on hand at the count.
- Deposits. Rental and utility deposits paid to the landlord and utilities. These are assets, not expenses, because you expect them back at the end of the lease.
- Fixed assets. Renovation, kitchen equipment, furniture and POS hardware, shown at cost minus accumulated depreciation.
- Payables. Supplier invoices not yet paid.
- GST payable. GST collected from customers minus GST paid on purchases, held until you file and pay IRAS. This is money you owe, even though it sits in your bank account.
- Accrued wages and CPF owed but not yet paid.
- Customer liabilities. Unredeemed gift vouchers and stored-value balances are amounts owed to customers until they are used.
- Loans, split into the amount due within a year and the amount due later.
- Equity. Paid-up capital plus accumulated profits minus losses and dividends.
Two quick checks tell you a lot. First, compare current assets (cash, receivables, stock) with current liabilities (payables, GST, wages, loan repayments due within a year). If current liabilities are larger, the business may struggle to pay bills on time even if it is profitable. Second, watch whether equity is growing. Losses reduce equity, and a business can lose money for months while the bank balance still looks acceptable because of deposits received or bills not yet paid.
Cash flow statement: why profit and cash differ
The most common surprise for new owners is a profitable P&L and an empty bank account. The cash flow statement explains the gap. We walk through a filled one in this cash flow statement example. It is usually split into three parts:
- Operating activities. Profit, adjusted for non-cash items such as depreciation and for changes in stock, receivables, payables and GST payable.
- Investing activities. Cash spent on renovation and equipment, or received from selling assets. Deposits paid also sit around here in many layouts.
- Financing activities. Loans received, loan repayments, capital put in by owners and dividends paid out.
Common reasons profit and cash differ in a restaurant:
- You paid for a renovation or a new combi oven up front, but the P&L only shows a slice of that cost each month as depreciation.
- Loan principal repayments reduce cash but are not an expense on the P&L; only the interest is.
- GST collected sits in the bank until the quarterly payment, then leaves in one lump.
- Card and delivery platform payouts arrive days after the sale. See our guide to payment processing fees for how settlement and fees work.
- You bought extra stock ahead of a festive period, so cash left before the sales came in.
For day-to-day cash planning, such as a 13-week forecast and managing supplier terms, use our guide to restaurant cash flow management. The statement described here is the monthly look back; the forecast is the look forward.
A worked example (hypothetical): one month, three statements
Consider a hypothetical café for one month. These numbers are invented to show the mechanics, not to suggest what a café should earn.
| P&L line (hypothetical) | Amount | % of sales |
|---|---|---|
| Sales, net of GST | $80,000 | 100% |
| Food and beverage cost | $24,000 | 30% |
| Labour including CPF | $24,000 | 30% |
| Prime cost | $48,000 | 60% |
| Rent and utilities | $14,000 | 17.5% |
| Other operating expenses | $8,000 | 10% |
| Depreciation | $3,000 | 3.75% |
| Net profit before tax | $7,000 | 8.75% |
In the same hypothetical month, the owner repaid $5,000 of loan principal, bought a $6,000 espresso grinder and stocked up $2,000 more coffee beans than usual. GST payable rose by $1,000 because the quarterly payment is not yet due. Starting from $7,000 profit, add back $3,000 depreciation (no cash left for it this month), subtract $2,000 for the stock build-up, add $1,000 for the higher GST payable, subtract $6,000 for the grinder and $5,000 for the loan. Cash falls by $2,000 in a month that showed a $7,000 profit. Nothing is wrong with the business; the cash flow statement simply shows where the money went. When the GST payment falls due next month, cash will dip again.
Where the numbers come from: POS, accounting and bank
Good statements depend on clean inputs:
- Sales should come from the POS, split by category and channel, with GST and service charge shown separately. Our guide to POS reports explains which reports to pull.
- Purchases and expenses come from supplier invoices entered in the accounting system.
- Stock comes from a month-end count, valued at cost.
- Payroll comes from your payroll records, including CPF and levies.
- Bank and settlement data confirm what actually arrived, which matters for card and platform receivables.
Syncing POS sales into the accounting system daily removes most manual keying. ChaChaCha, powered by AppsPOS, integrates with Xero, which is its accounting integration; see POS accounting integration and our guide to Xero for restaurants. Automated payment reconciliation helps match settlements to sales, and POS reports give sales by item and hour. For food cost, ChaChaCha’s inventory module deducts ingredients by recipe with each sale and gives recipe costing per menu item, so you can compare expected food cost with the counted figure. Keep the underlying records: IRAS says companies must keep source documents, accounting records and bank statements for at least 5 years from the relevant Year of Assessment (IRAS).
A monthly review routine
Set a fixed day, such as the tenth of each month, once your bookkeeper has closed the previous month. Then work through this list:
- P&L against budget. Compare each line in dollars and as a percentage of sales with your budget and with the same month last year.
- Prime cost. Check food and labour separately. Investigate any line more than a couple of percentage points off target.
- Balance sheet checks. Is cash plus receivables enough to cover payables, GST, wages and loan repayments due soon? Are supplier payables growing faster than sales?
- Cash flow. Reconcile the profit to the change in cash. Note any large equipment purchase, loan repayment or stock build.
- Actions. Write down two or three actions, with an owner and a date, and review them next month.
If you do not have a bookkeeper, our guide to bookkeeping services for F&B covers the options.
Common mistakes when reading restaurant accounts
- Treating GST as income. Sales should be read net of GST.
- Skipping the stock count. Without it, monthly food cost is a guess.
- Mixing owner drawings with expenses. Personal spending paid by the business distorts the P&L.
- Ignoring the balance sheet. A growing pile of unpaid supplier invoices or GST can hide behind a healthy-looking profit.
- Looking only at year-end accounts. By the time annual accounts are ready, a bad quarter is already months old.
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