Advantages and disadvantages of lifo

Reference no: EM13114037

FIFO means "first in, first out." This follows the assumption that the first items received into inventory are the first items sold. In some cases, this may not be true because companies often have to sell new items after old ones have become outdated. Businesses using FIFO show themselves as more profitable on paper.

LIFO mean "last in, first out." This method requires counting the cost of goods sold at the current price regardless of the amount paid for the inventory. If the prices increase, cost of goods sold will be higher and profit will be lower. This also allows the tax burden to be lower. This method is typically more popular because companies are always attempting to decrease their tax liability.

FIFO inventory costing during an inflationary period will result in increasing costs, meaning the items purchased first were cheaper. This decreases Costs of Goods Sold and increases Profit. Income tax is larger and the value of the remaining inventory is higher.

LIFO inventory costing during an inflationary period will result in rising costs, meaning that items recently purchased are more expensive. This increases the Costs of Goods Sold and decreases Profit, resulting in a lower tax burden. The value of any unsold inventory is lower.

Reference no: EM13114037

Questions Cloud

Identify the total hire/fire costs and the number of workers : Identify the total hire/fire costs and the number of workers employed at the end of October. Note: The ending inventory for October should be 0.

Journal entries for bad debts : Journalize the following transaction using the direct write-off method of accounting for uncollectible receivables.

Calculate the work done : Calculate the work done on a 2500. kg car in accelerating it from rest to a speed of 100. km/hr.

What roles do contractile, regulatory play : What roles do contractile, regulatory, and structural proteins play in muscle contraction and relaxation?

Advantages and disadvantages of lifo : FIFO means "first in, first out." This follows the assumption that the first items received into inventory are the first items sold. In some cases, this may not be true because companies often have to sell new items after old ones have become outd..

Explain variation of the data about the regression line : Use the value of the linear correlation coeffient of determinatiom. what does this tell you about the explained variation of the data about the regression line?

Describe the differences between a project manager : Describe the differences between a project manager and a functional manager. What impacts do these roles have on project success.

What fraction of the time will the current be turned on : An oil bath maintained at 50.5 oC loses heat to its surroundings at the rate of 4.68 kJ/min. Its temperature is maintained by an electrically heated coil with a resistance of 60 operated from a 110 V line.

Dangerous morality of managing earningsns : Discussion of the five generalizations from the findings in this study relating to managing earnings. Discussion of management's ability to manage earnings in the long-term given the operational manipulations discussed in the case.

User Account

All Pages