Reference no: EM133377699

For your responses, focus on the following questions: Do you agree with your classmates' responses as far as which company might obtain the loan if the bank bases its decision on net income and/or cash flows? Why or why not? How has the discussion impacted your understanding of the effects of FIFO and LIFO inventory methods on net income and cash flows? Support your responses to classmates with additional research and/or examples of your understanding of these inventory valuation methods.

After reviewing chapter 6 and accommodating the information, FIFO is more likely to get the loan because more banks value this type of account than LIFO. According to the resource Investopedia, "The Last-In, First-Out (LIFO) method assumes that the last unit to arrive in inventory or more recent is sold first. The First-In, First-Out (FIFO) method assumes that the oldest unit of inventory is the sold first. LIFO is not realistic for many companies because they would not leave their older inventory sitting idle in stock. FIFO is the most logical choice since companies typically use their oldest inventory first in the production of their goods. Deciding between these two inventory methods as implications on a company's financial statements as this decision impacts the value of inventory, cost of goods sold, and net profit."(FIFO vs. LIFO, 2022) FIFO overall will impact the company and adds more value to the business. I would prefer to use the FIFO accounting because it will increase profit overtime and help expand the business.

Q2: I believe that FIFO would also have a better advantage on winning this loan because it values the inventory and cost of goods first. As the LIFO most gathers older inventory that may have been sitting around for many years. According to the source Investopedia, "FIFO can be a better indicator of the value for ending inventory because the older items have been used up while the most recently acquired items reflect current market prices. For most companies, FIFO is the most logical choice since they typically use their oldest inventory first in the production of their goods, which means the valuation of COGS reflects their production schedule."(FIFO vs. LIFO, 2022) FIFO is a more precise and track their updated inventory thoroughly which makes them a more reliable method to use. It is much easier to management and keeps an accurate count on the newly inventory. Stated from the source Investopedia, "As a result, LIFO isn't practical for many companies that sell perishable goods and doesn't accurately reflect the logical production process of using the oldest inventory first."(FIFO vs. LIFO, 2022)