Selecting An Inventory Accounting System For Your Truck

One accounting decision that food trucks that maintain a food inventory is which inventory accounting system to use to record the cost of goods sold expense, which is the sum of the costs of the products sold to customers during the period. You deduct the cost of goods sold from sales revenue to determine your gross margin. Cost of goods sold is a very important figure because if your food truck gross margin is wrong, your food truck’s bottom-line profit will be wrong.

Product costs are entered in the inventory asset account in the order in which they’re acquired, but they aren’t necessarily taken out of the inventory asset account in the same order. You can choose the right inventory accounting system (for you) to record your cost of goods sold and the cost balance that remains in your inventory asset account.

3 Simple Inventory Accounting Systems

  • FIFO (first-in, first-out): You charge out product costs to cost of goods sold expense in the chronological order in which you acquired the products. The procedure is that simple. It’s like the first people in line at your truck get their orders first. The window server takes the orders in order in which they were bought.

  • LIFO (last-in, first-out): The main feature of the LIFO method is that it selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.

  • Average cost: Compared with the FIFO and LIFO methods, the average cost method seems to offer the best of both worlds. The costs of many things in the mobile food industry fluctuate, so you may decide to focus on the average product cost over a time period. Also, the averaging of product costs over a period of time has a desirable smoothing effect that prevents cost of goods sold from being overly dependent on wild swings of one or two purchases.

We understand that not all food trucks maintain an inventory, but for those that do, this article should help you select an inventory accounting system you feel comfortable with to keep track of the costs of your inventory. Which inventory accounting system do you use? We’d love to hear your thoughts. You can share them below or on social media. Facebook | Twitter

2017-03-31T08:40:31+00:00 By |Accounting|

About the Author:

Richard is an architect by degree (Lawrence Technological University, Southfield, Michigan) who began his career in real estate development and architectural planning. In September of 2010 he created Mobile Cuisine Magazine to fill an information void he found when he began researching how to start a mobile hotdog cart in Chicago. Richard found that there was no central repository of mobile street food information anywhere on the internet, and with that, the idea for MCM was born.

One Comment

  1. Connie Brawner Aug 9, 2016 at 1:44 pm

    Accounting- —- God help me.
    Keep up the advice, all is being put in my plan. Thanks.

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