Accounting 3326 Past Info.docx - Accounting 3326 Past Info Lifo vs Fifo and Lifo Reserve o COGS are higher under Lifo and lower under Fifo o End Inv is

Accounting 3326 Past Info.docx - Accounting 3326 Past Info...

This preview shows page 1 - 3 out of 6 pages.

Accounting 3326 Past Info Lifo vs. Fifo and Lifo Reserve o COGS are higher under Lifo and lower under Fifo o End Inv is higher under Fifo and lower under Lifo o Retained Earnings is higher under Fifo and lower under Lifo o Taxes are higher under Fifo and lower under Lifo o Perpetual Inv. keeps a continuous record of inventory and uses ending inventory as a plug to test against a physical count Better for keeping track of theft and shrinkage o Periodic Inv. does not keep a continuous track of sold inventory so they count inventory at the end of the period and use the missing plug as the costs of goods sold o Lifo has the most recent costs on the Income Statement o Fifo has the most recent costs on the Balance Sheet o LIFO conformity rule: if you use Lifo for tax purposes then you must also use it for financial accounting purposes o Lifo is primarily allowed in the US but not IFRS o Lifo companies are required to report a reconciliation of Lifo values to Fifo values o Fifo ending inventory – lifo ending inventory =life reserve How much lower our cogs, higher our retained earnings, and higher our taxes would be had we used Fifo instead of lifo o The change in the lifo reserve is the lifo earnings effect per year o Lifo Adv: ability to reduce income taxes, better matching of expenses to revenues o Lifo Disadv: lowering taxes also means lowering profits, lifo can result in unrealistically low values in ending inventory, lifo
records are more complicated, may result in lifo liquidations (earnings management tool)

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture