---
title: "Item Categories"
slug: "item-categories"
description: "Create and configure three-level item category records to group purchased items for reporting and cost tracking hierarchy."
updated: 2026-07-30T17:23:11Z
published: 2026-07-30T17:23:11Z
canonical: "docs.restaurant365.com/item-categories"
---

> ## Documentation Index
> Fetch the complete documentation index at: https://docs.restaurant365.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Item Categories

Up to three separate Item Categories can be assigned to each [Purchased Item record](/doc/docs/purchased-item-record-overview-security) and are used in various Reports to create subtotals or filters. Additionally, Item Categories can be assigned to [Recipes](/doc/docs/recipe-item-record) that have been marked as 'Available in Inventory'.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/82f14ebe-7a05-4142-97e8-2a1249d203e6.png)

Item Categories are organized in the following way:

| Item Category | Description | Example |
| --- | --- | --- |
| **Item Category 1** | Broad | Food - Cost Account = Food Cost - Inventory Account = Food Inventory |
| **Item Category 2** | More Specific | Dairy - Cost Account = Dairy Cost - Inventory Account = Blank |
| **Item Category 3** | Very Specific | Cheese - Cost Account = Cheese Cost - Inventory Account = Cheese Inventory |

These then fall into a hierarchy when entering them on an Item record. Therefore, if all three Item Categories are entered on an Item record, the Cost account will be used accordingly: Item Category 3 will override Category 2, and Category 2 will override Category 1.

> This hierarchy will follow in this order when the most specific account has both the Cost Account and Inventory Account entered.

Item Categories are different than Menu Item Categories and should be created and structured differently as well. Click here for more information on [Menu Item Categories](/doc/docs/menu-item-categories).

---

## Navigation

****Navigation Steps****

1. Open the **Inventory** app.
2. Expand **Items**.
3. Select **Item categories**.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-HUJETJVA.png)

****Search****

Navigate to pages with the [R365 global search bar](/doc/docs/r365-search):

1. Enter all or part of the **page name** in the R365 global search bar.
2. Select the page from the results list.

> Only enabled pages can be searched for. If the desired page is not enabled, contact your CSM for assistance.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-1745007955784.png)

---

## Item Category Form

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/451eaf1c-bf4d-446a-8ca5-742487576731.png)

|  | Field | Description |
| --- | --- | --- |
| **1** | Name | Name of the item category. > Item Category 1 should be broad, item category 2 should be more specific, and item category 3 should be very specific. |
| **2** | Cost Account | The COGS cost of goods sold) account that will be assigned to this item category. During item creation, when an item is assigned to this item category, this account will auto-populate into the proper GL account field. > This field is **required** for Item Category 1 when **Accounting is off.** > > If an item is part of an item category 2 or 3 that each do not have a linked cost account, the item will assume the cost account of the item category 1. |
| **3** | Waste Account | The GL Account that will be debited upon entering an item from this category on a [waste log](/doc/docs/waste-logs-overview-security). |
| **4** | Acceptable Variance % (Purchasing) | The set positive variance threshold allowed for this item category within Purchasing. This is the acceptable percent cost increase that is allowed for items within the item category. Threshold violations for this Variance % appear on the AP invoice. When the cost of an item increases, and the cost increase exceeds this set variance, a threshold violation notice will appear. Read more about the [purchasing Variance % threshold](/doc/docs/item-category-variance-caps). |
| **5** | Inventory Variance | The acceptable variance threshold for inventory discrepancies. This value only affects the Review Theoretical filter on the Variance Review tab of inventory counts; it does not affect which items appear on the Variance Review tab when no filter is applied. When Review Theoretical is selected, R365 compares each item's counted variance against the Inventory Variance threshold configured for its assigned item category, and shows only items whose variance exceeds that threshold. This field follows the item category hierarchy: Item Category 3 → Item Category 2 → Item Category 1. When an item is assigned to more than one item category, R365 uses the Inventory Variance value from the most specific item category that is not blank. If no item category in the account has an Inventory Variance value configured, Review Theoretical returns no items, since there is no threshold for any item's variance to exceed. Read more about [inventory count variances](https://docs.restaurant365.com/docs/en/inventory-count-variances). |
| **6** | Item Prefix | A prefix assigned to the item category that helps to search and sort Items. Ex.: PROD for Produce. This prefix will be auto-filled to the name of newly created items assigned to the category. New items will take only one assigned item category prefix. The item categories will be considered in the following order: Item Category 3 → Item Category 2 → Item Category 1 R365 recommends using ALL CAPS for item prefixes to easily distinguish item prefixes from item names. Item Prefix Examples: \| **Item Category Prefix** \| **Item** \| **Item Name** \| \| --- \| --- \| --- \| \| PROD \| Apple \| PROD Apple \| \| MEAT \| Chicken Breast \| MEAT Chicken Breast \| \| BEER \| ABC Beer \| BEER ABC Beer \| |
| **Item Category Prefix** | **Item** | **Item Name** |
| PROD | Apple | PROD Apple |
| MEAT | Chicken Breast | MEAT Chicken Breast |
| BEER | ABC Beer | BEER ABC Beer |
| **7** | Inventory Account | The inventory account that accounts for this item category. During item creation, when an item is assigned to this item category, this account will auto-populate into the proper GL Account field. > This field is **required** for Item Category 1 when **Accounting is off.** > > If an item is part of an item category 2 or 3 that each do not have a linked cost account, the item will assume the cost account of the item category 1. |
| **8** | Donation Account | The GL Account that will be debited upon entering an item from this category on a [donation log](/doc/docs/donations-overview-and-security). |
| **9** | Actual as Theoretical | Determines whether to use the actual usage for this item category in place of the theoretical usage (via recipes mapped to menu items) on the Actual vs Theoretical (AvT) Report. |
| **10** | Counted | > [!WARNING] > This field is reserved for a future enhancement and is not currently used. |
| **11** | Exclude From Order Suggestions | When marked 'Yes,' all the items in the item category will be excluded from the **Suggest QTY** calculation when creating a purchase order. The Order QTY for these Items will need to be entered manually. |
| **12** | Save | Saves the item category. The Save dropdown has the Save & Create Another option. When clicked, this will save the current item category and promptly open a new item category form for more efficient item category creation. ![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-AIU9TTO3.png) |

### Variance Cap and Variance Cap Adjustment Fields

Users with the [Food Variance](/doc/docs/food-variance-report) report enabled have the Variance Cap Type and Variance Cap Adjustment fields.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-I304ETF0.png)

| Field | Description |
| --- | --- |
| Variance Cap Type | The type of cap adjustment applied to items on the [Food Variance report](/doc/docs/food-variance-report). The options include the following: \| None \| Does not apply a variance cap adjustment. \| \| --- \| --- \| \| Item Category \| Applies the adjustment as the sum of all variances. The percent adjustment is the net of all items in the item category. This is only available for Item Category 3. \| \| Item \| Applies the adjustment percent at individual item usage. The percent adjustment is applied to each individual item in the category. \| |
| None | Does not apply a variance cap adjustment. |
| Item Category | Applies the adjustment as the sum of all variances. The percent adjustment is the net of all items in the item category. This is only available for Item Category 3. |
| Item | Applies the adjustment percent at individual item usage. The percent adjustment is applied to each individual item in the category. |
| Variance Cap Adjustment | The adjustment applied to the items within the category. This value reflects the percent of acceptable variance for how must the items in this category are allowed to grow. |

## Item Category Examples and Naming Recommendations

****Item Category 1****

These typically represent broad level categories.

- Food
- Liquor
- Beer
- Wine
- Supplies
- Retail

****Item Category 2****

Typically, these represent the more detailed categories within each Category 1. Category 2s usually line up with P&L Accounts in the food categories (but not always).

- Food:
  - Meat
  - Seafood
  - Dairy
  - Produce
  - Dry Goods
- Liquor:
  - Vodka
  - Tequila
  - Gin
  - Rum
- Beer:
  - Bottle Beer
  - Draft Beer and
- Wine:
  - Red
  - White
  - Sparkling
- Supplies:
  - Paper

****Item Category 3****

These are used less often but can come in handy if an organization has a large selections of an item category 2, such as an extensive Wine or Beer list (or a lot of different Meats).

- Bottle Beer:
  - IPA
  - Stout
  - Amber
  - Ale
- Wine:
  - Merlot
  - Cabernet
  - Chardonnay
- Meat:
  - Beef
  - Pork
  - Poultry
  - Deli

> [!TIP]
> R365 Recommends
> 
> For item categories, users should enter item prefixes in all caps, like LBW (liquor, beer wine), BEER, BEER BTL, MEAT, POULTRY, WINGS. This will make item category prefixes easily distinguishable from the item name.

---

## Create Item Categories

Item categories can be created using the following methods:

**From the Item Category Page**

Navigate to the Item Category list page, and click the **+Create** button

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-8V1SKW3I.png)

Select the Item Category (1, 2, or 3). This will open the New Item Category form.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/0db54618-c1ee-427b-97f7-91211456c349.png)

**Via the Import Tool**

Open the import tool.

In the Options field, select, 'Item Category.’ In the Type field, select ‘Create New.’

Download the template by clicking **Download Template** and proceed to complete the template in a preferred spreadsheet application

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/4a738260-1153-4029-a3c1-89f4ca615e8b.png)

> [!NOTE]
> The **Type** column on the template should be filled with the Item Category Number Type: 1, 2, or 3.

---

## View and Edit Existing Item Categories

To view and edit an existing item category, navigate to the item categories grid. Locate the item category. Click the item category name to open the item category form.

Edit the item category fields as needed. Any edits will enable the Save button. Click **Save** to save any changes before closing the form.

![](https://cdn.us.document360.io/5c9d1111-0c69-4e96-8910-d7f2750fdc9d/Images/Documentation/image-E4X2GPZV.png)

---

## Popular Reports that Utilize Item Categories

- [Actual vs Theoretical Analysis](/doc/docs/actual-vs-theoretical-analysis) - Actual vs Theoretical efficiency with full drill down capability
- [Item Price Change Analysis](/doc/docs/item-price-change-analysis) - View received cost fluctuations over time for each item

Structured documents that provide insights and summaries of various operational metrics and financial data.

Financial account used to record specific transactions in the general ledger.

Restaurant365