Unformatted text preview: 2. FIFO(first in first out)= oldest goods purchased are first to be sold 3. LIFO(last in first out)= newest goods purchased are first to be sold 4. Average cost= uses avg weighted cost Income statement effects : (Assuming inflation) 1. FIFO=highest NI a. Some profit is referred to as “phantom profit” because profit is overstated 2. LIFO=lowest NI a. Most accurate revenue b. LOWER INCOME TAXES 3. Average= middle NI Balance sheet effects : 1. FIFO= accurate 2. LIFO= understated-When value of inventory is lower than cost, they can write down its market value instead-AKA: Lower of cost or market (LCM) “market”=current replacement cost LIFO reserve: =when companies use LIFO they must report the amount that inventory would increase if the company was using FIFO...
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- Winter '08
- Lower income taxes, FOB destination= ownership, Consigned goods= goods, Average= middle NI, Specific ID method