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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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This note was uploaded on 11/21/2011 for the course BUS 214 taught by Professor Waker during the Winter '08 term at Cal Poly.
- Winter '08