Principles of Accounting I
As in Unit III, assume you own a restaurant. What inventory costing method would you prefer, and why? Also, include a discussion as to whether the costing method you would use for your accounting records would follow the actual flow of your inventory.
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If I owned a restaurant, I would use the FIFO method – First in, First Out. I try to use this same system in running the warehouse at work. It only makes sense, especially in a food industry. You want to use the oldest up first. I use this here at work as we work with a lot of fittings that have rubber gaskets in them and these tend to dry rot after a while, so you want to use the oldest first to help prevent this. It doesn’t always happen that way, but that is the rule we try to follow.
I believe this would follow the actual flow of my inventory and hopefully, with food, it is date stamped, which is also helpful in tracking the oldest product. If you do not use up the oldest products first, then you end up just throwing it away anyway when it expires. An owner would much rather sell the product and make money than to throw it out.