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  • Inventory Lifo Fifo

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    Alex Yeap
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    This document compares LIFO and FIFO accounting methods and their effects on various financial metrics. It states that under LIFO, revenue, gross profit, profit, cash flow from operations, inventory turnover, working capital, net income, and stockholder equity are lower, while COGS, income tax payments, and the inventory balance are higher compared to FIFO. It explains that LIFO leaves older, lower-cost inventory on the books, reducing reported profits and tax liability.

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    This document compares LIFO and FIFO accounting methods and their effects on various financial metrics. It states that under LIFO, revenue, gross profit, profit, cash flow from operations, inventory turnover, working capital, net income, and stockholder equity are lower, while COGS, income tax payments, and the inventory balance are higher compared to FIFO. It explains that LIFO leaves older, lower-cost inventory on the books, reducing reported profits and tax liability.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    51 views1 page

    Inventory Lifo Fifo

    Uploaded by

    Alex Yeap
    This document compares LIFO and FIFO accounting methods and their effects on various financial metrics. It states that under LIFO, revenue, gross profit, profit, cash flow from operations, inventory turnover, working capital, net income, and stockholder equity are lower, while COGS, income tax payments, and the inventory balance are higher compared to FIFO. It explains that LIFO leaves older, lower-cost inventory on the books, reducing reported profits and tax liability.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    1. Revenue 2. Gross profit 3. COGS 4. Profit 5. Income tax 6. Cash flow 7. Inventory turnover 8. Working capital 9.

    Debt to equity ratio 10. Net income 11. Cash from operating 12. Inventory balance 13. Asset 14. Stockholder equity

    LIFO same lower higher lower lower higher higher lower higher lower higher lower lower lower

    FIFO same higher lower higher higher lower lower higher lower higher lower higher higher higher

    Why for LIFO selling price same COGS increase use recent price COGS increase low profit low tax payment COGS higher inventory balance low, high cash balance because low tax payment retained earning low so equity low COGS higher low tax payment
    COGS high & low price inventory remain

    Inventory balance is low inventory & retained earning lower

    Income difference = (1-Tax) X COGS differences Cash Flow difference = Tax Rate X COGS difference LIFO Reserve
    COGS LIFO COGS FIFO

    =
    = =

    Inventory FIFO Inventory LIFO


    Beginning inventory LIFO+ Purchase Ending Inventory LIFO Beginning inventory FIFO+ Purchase Ending Inventory FIFO

    COGS FIFO COGS FIFO

    = =

    COGS LIFO - Change in LIFO Reserve COGS LIFO - Change (Ending LIFO Beginning LIFO)

    Use LIFO, Working capital reduced -> retained earning low Use LIFO, Profit Sharing Payment lower, reduce compensation paid Use LIFO, Profit Sharing Payment lower, effect bond convenants Use LIFO, Profit Sharing Payment lower, higher wage demand from workers Use FIFO, why failed to obtain tax saving by using LIFO.

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