accounting notes

accounting notes - Factors Used in Selecting an Inventory...

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Factors Used in Selecting an Inventory Cost Method Income Statement effects Balance Sheet effects Tax effects Income Statement Effects In periods of increasing prices o FIFO reports the highest net income o LIFO the lowest o Average cost falls in the middle In periods of decreasing prices o FIFO will report the lowest net income o LIFO the highest o Average cost in the middle Balance Sheet Effects In a period of increasing prices, costs allocated to ending inventory using: o FIFO will approximate current costs o LIFO will be significantly understated Why do companies use LIFO? During periods of rising prices, Higher cost of goods sold Lower net income Lower Income Taxes Consistency Whatever cost flow method a company chooses, it must use it consistently… OR Disclose the change and its effects on net income in the financial statement Lower of Cost or Market Basis of Accounting for Inventories When the value of inventory is lower than its cost (based upon the cost flow
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This note was uploaded on 02/27/2008 for the course BCOR 2000 taught by Professor Brush during the Fall '07 term at Colorado.

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accounting notes - Factors Used in Selecting an Inventory...

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