Lifo and Fifo in Accounting

LIFO, last-in-first-out and FIFO, first-in-first-out the two most common inventory business relationship methods. The picking of the method of inventory accounting by a flyspeck business piece of ass directly impact its balance sheet, income disceptation, and statement of cash flows. Not only do companies have to itinerary the number of items sold, but they have to track the damage of severally item. These two methods are ways in which they can do that. Each will have a different proceeding on their financial statements. How is Inventory Determined? Inventory can be broken down into three categories: raw materials, work-in-process, and stainless goods. Raw materials are inventory used to produce assets for sale. Work-in-process is assets in production for sale. Finished goods are assets intended for sale. The inventory comparison is the following: 1. Beginning Inventory + Net Purchases - Cost of Goods change = Ending Inventory There are two common methods for accounting for this inventory. LIFO - Last-In, First-Out LIFO assumes that the last items put on the ledge are the first items sold. LIFO is a good body to use when your products are not perishable or locomote obsolete. Under LIFO, when damages rise, the higher priced items are sold first and the pooh-pooh priced products are left in inventory.

This increases a companys cost of goods sold and lowers their tax liability and, as a result, their last(a) income. This inventory accounting method seldom approximates replacement be for inventory, which is one of its drawbacks. In addition, it usually does not correspond to the factual physical flow of goods. Lets use the gasoline effort as an example. Lets say that a tanker hand truck delivers 2,000 congiuss of gasoline to Alans Service Station on Monday and the price at that time is $2.35/gallon. On Tuesday, the price of gasoline has gone(p) up and the tanker truck delivers 2,000 more gallons at a price of $2.50/gallon. Under LIFO, the gasoline station would assign the $2.50 gallon gasoline to Cost of Goods... If you want to get a serious essay, order it on our website: Orderessay

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