Week 4 Dis 1 - progresses This leaves the inventory with no...

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First off, FIFO means, First-In, First-Out. The FIFO method (First-In, First-Out) assumes that units sold are the first units acquired (Spiceand, Sepe, & Nelson, 2011). Less expensive units are sold first when there is an ongoing increase in the cost of the units as time progresses. This leaves the higher priced goods in the inventory. Looking at the balance sheet, an inventory value is much closer to the actual cost and selling the less expensive unit first. This makes the cost of goods sold lower, which leaves to higher profits. The LIFO method (Last-In, First Out) would have an opposite effect. The LIFO method assumes that the units sold are the most recent units purchased (Spiceland, Sepe, & Nelson, 2011). Less expensive units are left in the inventory for a cost to increase in the units purchased as time
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Unformatted text preview: progresses. This leaves the inventory with no reflection to the current replacement cost. This make the cost of goods sold higher, which leaves to lower profits. Depending on what I would be showing, would be my decision on the choosing from the two. I would go with the FIFO method because it shows a higher profit. Using LIFO would make the profits less and using FIFO would show investors a greater profit. So, at this point I would think showing higher profits would make investors see what they would be working with. Reference: Spiceland, J. D., Sepe, J. F., & Nelson, M. W. (2011). Intermediate Accounting, Sixth Edition. New York, N.Y.: McGraw-Hill Irwin....
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