1. Industry Overview and Revenue Characteristics
The restaurant business is a significant part of the world’s economy. A report by Bank of America says that in 2025, people in the US spent about $1.5 trillion on restaurant food and other food services .[i] In comparison, U.S. consumers spent about $702.6 billion on transportation services and $819 billion on recreation services in 2025, making spending on restaurants and food services almost as great a portion of the economy as those other two categories combined.[ii] The restaurant industry is highly dynamic because it constantly adjusts to shifting consumer tastes and dining behaviors and rapidly adopts new technologies, such as AI reservation systems and robotic coffee makers.[iii] Given the industry’s dynamic nature and economic significance, financial reporting and auditing within this sector require specialized attention.
Auditors and preparers must develop a comprehensive understanding of financial statements and revenue structures, as revenue generation constitutes the primary driver of value in food services businesses. Multi-unit restaurant chains frequently operate under hybrid models consisting of both company-owned locations and franchised units, such as Arby’s, with 32.5% of locations company‑owned and 67.5% franchised; and Little Caesars, with 14% company‑owned and 86% franchised.[iv] Revenue sources include sales from company-operated restaurants, franchise royalties, franchise fees, advertising fund contributions, and supplier loyalty reward programs. There are often separate contractual arrangements and accounting for performance obligations under ASC 606 for each of the revenue sources.
this article examines the practical considerations, key challenges, and developments in revenue recognition within the food services industry, offering insights for financial reporting professionals and audit practitioners
Accordingly, this article examines the practical considerations, key challenges, and developments in revenue recognition within the food services industry, offering insights for financial reporting professionals and audit practitioners. By highlighting common risk areas and practical considerations in applying ASC 606, the discussion aims to help practitioners better evaluate revenue recognition practices and improve the reliability and transparency of financial reporting in the restaurant sector.
2. Identifying Contracts and Performance Obligations
Under ASC 606, a contract is formed when a customer orders food or drinks at a restaurant. These contracts are typically simple and short-term, with payment made immediately or when the order is ready. The restaurant’s single performance obligation is to deliver the ordered food and beverages, and revenue is recognized when the customer receives the order, whether at the table, counter, or drive-through. Although the transaction itself is straightforward, the high volume of sales and reliance on automated POS systems create operational challenges. Because individual transactions are small, fraud is difficult to detect at the single-order level and may only be visible at an aggregated level. Auditing is therefore complicated by the need to understand the POS system, IT infrastructure, and data flow, as well as to analyze large restaurant datasets, often requiring advanced data visualization skills.
Recognition of franchise-related revenue, including royalty fees, marketing fund contributions, and franchise fees, differs from revenue recognition in company-operated restaurant sales. Franchisee revenue can be complex when sub-franchisees are involved, as upfront fees and equity payments are recognized over the term of the agreement.[v] Franchisees typically pay the franchisor a percentage of restaurant sales based on the terms specified in the franchise agreement. Key risks include whether the franchise agreement is valid and whether the royalty percentage is applied correctly. Because royalties and marketing fees are based on franchisee sales, the accuracy and completeness of the reported sales are critical. Auditors should review franchise agreements and recalculate royalties based on franchisee sales reports to verify compliance with the agreement terms. Furthermore, many restaurants integrate their POS systems with financial reporting software to streamline operations, reduce manual errors, and capture both sales and labor data.[vi] Auditors should be trained to understand these system interactions, keep up with technological changes, and sharpen their judgment on how such integrations can improve audit procedures; for example, automated labor data can support payroll testing.
3. Determining Transaction Price and Allocation
Under ASC 606, determining the transaction price involves identifying the amount of consideration an entity expects to receive in exchange for transferring goods or services to customers. In the food services industry, the transaction price is typically the menu price of food and beverages charged to customers at the point of sale. However, the transaction price may be affected by factors such as discounts, promotional offers, coupons, gift cards, and third-party delivery platform commissions. Restaurants must evaluate these elements to determine whether they represent variable consideration or reductions of revenue.
In practice, promotional discounts and coupons are typically treated as reductions of the transaction price rather than variable consideration because the final price is known at the time of sale. For example, if the menu price of a meal is $20 but a $5 promotion is applied, the restaurant recognizes revenue of $15 rather than recording $20 in revenue and $5 as a promotion expense. As a result, restaurants recognize revenue net of these discounts. A key risk in this area relates to classification, as restaurants may record gross menu prices as revenue and treat promotional discounts as marketing expenses. This misclassification can lead to an overstatement of revenue and inaccurate financial reporting.
4. Third-Party Delivery Arrangements
The growth of digital ordering platforms such as Uber Eats and DoorDash has significantly reshaped restaurant revenue streams and introduced principal-versus-agent considerations. Restaurants enter formal agreements outlining fees, order processing, and delivery logistics, with the platforms acting as middlemen connecting customers to restaurants rather than selling food directly.[vii] When a customer orders through a third-party platform, the restaurant must assess whether it controls the goods or services. If the restaurant controls preparation, pricing, and fulfillment, it is the principal and records gross revenue with platform commissions as expenses—for example, a $20 order with a 25% commission would be recorded as $20 revenue and $5 service expense; if the platform controls key aspects, the restaurant acts as an agent and records revenue net of commission, e.g., $15 revenue. Auditors should understand these roles to ensure proper principal-versus-agent classification and revenue presentation.
Third-party delivery arrangements create challenges for auditors when testing restaurant revenue. Platforms maintain their own systems and remit funds in batches, often after deducting commissions and with settlement delays. This makes tracing individual transactions to bank deposits difficult, as different platforms use different reporting and payment structures. Auditors typically obtain platform sales reports and settlement statements, reconcile them to POS records, and verify remitted amounts at the batch level to ensure the completeness and accuracy of recorded revenue.
5. Discussion and Conclusion
Revenue recognition in the restaurant industry presents unique challenges due to the sector’s high transaction volume, diverse revenue streams, and increasing reliance on digital platforms. As restaurant chains expand through franchising, promotional pricing strategies, and third-party delivery services, the application of ASC 606 requires careful judgment in identifying performance obligations, determining transaction prices, and evaluating principal-versus-agent relationships. These complexities create heightened risks related to data reliability, revenue classification, and the completeness and accuracy of reported sales.
For both auditors and financial reporting professionals, understanding operational systems such as POS platforms, franchise reporting processes, and third-party delivery arrangements is essential to ensuring accurate revenue recognition. By applying consistent accounting practices, strengthening internal controls, and carefully evaluating key risk areas, organizations can enhance the transparency, reliability, and comparability of financial reporting within the restaurant industry.
[i] “State of the Restaurant Industry 2025” (report), Bank of America, 2025, https://business.bofa.com/en-us/content/restaurant-industry-report.html.
[ii] Federal Reserve Bank of St. Louis, “Table 2.4.5. Personal consumption expenditures by type of product,” FRED, accessed 2026, https://fred.stlouisfed.org/release/tables?eid=44183&rid=53.
[iii] Ben Mathews, Katharine Mattox, et al., “What U.S. consumers want from restaurants in 2026,” McKinsey & Company, January 8, 2026, https://www.mckinsey.com/industries/retail/our-insights/what-us-consumers-want-from-restaurants-in-2026; Deloitte, “Cutting-edge restaurant industry trends and innovations” (LinkedIn Live discussion), 2025, accessed 2026, https://www.deloitte.com/us/en/Industries/consumer/articles/restaurant-industry-trends-and-innovation.html.
[iv] Andrew Adam Newman, “How restaurant chains choose between being company-owned or franchisee-owned,” Retail Brew, November 7, 2023, https://www.retailbrew.com/stories/2023/11/07/how-restaurant-chains-choose-between-being-company-owned-or-franchisee-owned.
[v] Restaurant Brands International Inc. Annual Report 2025 (Form 10‑K), https://s26.q4cdn.com/317237604/files/doc_financials/2025/ar/10-K.pdf.
[vi] Jenny Day, “Why restaurants need POS integration,”Restaurant365, accessed 2026, https://www.restaurant365.com/blog/why-restaurants-need-pos-integration/.
[vii] “How to partner with a third-party delivery platform,” Uber Eats, October 2022, updated April 2025, https://merchants.ubereats.com/us/en/resources/articles/partner-with-third-party-delivery/.
