Comparing the assumed cost flow methods

Comparing the assumed cost flow methods - If the cost of...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Comparing the assumed cost flow methods . Although the cost of goods available for sale is the  same under each cost flow method, each method allocates costs to ending inventory and cost of  goods sold differently. Compare the values found for ending inventory and cost of goods sold under  the various assumed cost flow methods in the previous examples.  Weighted Average (Periodic) Moving Average (Perpetual) FIFO (Periodic or Perpetual) LIFO (Periodic) LIFO (Perpetual) Ending Inventory $ 1,600 $ 1,670 $ 1,700 $ 1,400 $ 1,550 Cost of Goods Sold 5,600 5,530 5,500 5,800 5,650 Cost of Goods Available for Sale $ 7,200 $ 7,200 $ 7,200 $ 7,200 $ 7,200
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: If the cost of goods sold varies, net income varies. Less net income means a smaller tax bill. In times of rising prices, LIFO (especially LIFO in a periodic system) produces the lowest ending inventory value, the highest cost of goods sold, and the lowest net income. Therefore, many companies in the United States use LIFO even if the method does not accurately reflect the actual flow of merchandise through the company. The Internal Revenue Service accepts LIFO as long as the same method is used for financial reporting purposes....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online