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Unformatted text preview: a. LIFO Conformity Rule: U.S. income tax rule requiring LIFO to be used for financial reporting purposes if it is adopted for taxation purposes. b. LIFO Liquidation (PROBLEM): When current revenues are paired with past costs so that reported profits seem much higher than they actually are. Occurs when companies purchase and sell the same amount of product each year, leaving the original cost of inventory as the basis for computing COGS. III. Merging Periodic and Perpetual Inventory Systems with a Cost Flow Assumption a. For moving (perpetual) averaging, make a new average price every time company buys inventory at a new price. b. Gross Profit Percentage = Gross Profit / Net Sales c. COGS/365 = Cost of inventory sold per day i. Avg. Inventory/Cost on inventory sold per day = number of days inventory is held d. COGS/Avg. Inventory = Inventory Turnover...
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- Spring '07
- FIFO and LIFO accounting, Perpetual Inventory Systems