How does inventory management integrate with the restaurant's financial reporting?

• A. Inventory data is ignored in P&L calculations
• B. Inventory counts feed into COGS on the P&L and affect the balance sheet through variances
• C. Inventory has no effect on gross margin
• D. Inventory is only relevant for tax calculations

Answer: (B)

Tracking inventory connects what’s happening in the kitchen with the financial numbers you see in reports. The cost of goods sold is determined by what you started with, what you purchased or produced, and what you have left at period end. When you do physical counts and compare them to your records, any variances—like shrinkage, spoilage, or supplier errors—must be recorded. Those adjustments impact both the income statement (COGS, which changes gross margin) and the balance sheet (the inventory asset value). Because gross margin is revenue minus COGS, accurate inventory counts are essential for showing true profitability. Inventory isn’t only about taxes; it shapes profitability, liquidity, and financial insight. If inventory isn’t integrated into reporting, COGS and margins can be misrepresented, leading to unreliable decisions.