In between fifo and lifo which one is the correct method, Accounting Basics

Assignment Help:

Q. In between FIFO and lifo which one is the correct method?

The differences for the four methods take place because the company paid different prices for goods purchased. No differences would take place if purchase prices were constant. Ever since a company's purchase prices are seldom constant inventory costing method affects cost of goods sold or inventory cost or gross margin and net income. Thus companies must disclose on their financial statements which inventory costing methods were used. Which one is the correct method? All four methods of inventory costing are satisfactory no single method is the merely correct method. Different methods are good under different conditions. If a company needs to match sales revenue with current cost of goods sold it would use LIFO. If a company look for to reduce its income taxes in a period of rising prices it would also use LIFO. On the other hand LIFO frequently charges against revenues the cost of goods not actually sold. As well LIFO may permit the company to manipulate net income by changing the timing of additional purchases.

The FIFO as well as specific identification methods results in a more precise matching of historical cost with revenue. Though, FIFO is able to give rise to paper profits while specific identification can give rise to income manipulation. The weighted-average method as well allows manipulation of income. Merely under FIFO is the manipulation of net income not possible.


Related Discussions:- In between fifo and lifo which one is the correct method

Components of profit and loss account, Components of Profit and Loss Accoun...

Components of Profit and Loss Account The Profit & Loss Account intend to check profit. It has three parts. 1) The Trading Account: These account the money in (revenue)

The total revenue of the month of june amounted, The total revenue of the m...

The total revenue of the month of June amounted to $6,500; total expenses amounted to $3,500; and withdrawals amounted to $600. The net income for the month amounted to $6,000. $

Describe the cost of sales, Q. Describe the Cost of sales? Cost of sale...

Q. Describe the Cost of sales? Cost of sales, cost of goods sold -- expense or cost of all items sold during an accountingperiod. Every unit sold has a cost of sales or cost of

International capital budgeting, International Capital Budgeting Ques...

International Capital Budgeting Question 1. How does international capital budgeting differ from domestic capital budgeting? Many firms, when assessing international proj

Equity segment of a corporate balance sheet, Q. Equity segment of a corpora...

Q. Equity segment of a corporate balance sheet? The stockholders' equity segment of a corporate balance sheet can become more complex as you will see later in the text. But the

General rationale financial statements, General rationale financial stateme...

General rationale financial statements provide much of the information needed by external users of financial accounting. These financial statements are official reports providing i

Service revenue earned on account, Service revenue earned on account M...

Service revenue earned on account Metro performed courier deliverance services for a customer who agreed to pay USD 900 at a later date. The company approved credit rather tha

Lack of accounting harmonisation between us gaap, In November 2012, US base...

In November 2012, US based information technology Hewlett Packard recorded a write-down of around $8.8 billion related to its $11.3 billion acquisition of the UK based software mak

Explain the terms assets and liabilities, Two friends, Joe and Bill, both h...

Two friends, Joe and Bill, both have carpentry skills and decide to go into business as partners together ?tting kitchen cabinets. Joe's uncle has agreed to provide £20,000 of capi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd