Studied by 0 people
Looks like no one added any tags here yet for you.
LCM
A valuation rule, required inventory to be written down when it falls below its cost
Rising costs
FIFO makes company look more profitable, higher inventory values, lower COGS
Inventory
converted to cash within one year, current asset, initially recorded at cost
Net sales- COGS=
Gross profit
Specific Identification Method
Individually identifies and records the cost of each item sold as COGS
FIFO
first in first out, assumes that the inventory costs flow out in the order the goods are received
LIFO
Assumes that the inventory costs flow out in the opposite of the order the goods are received
WAC
Weighted average cost, uses WAC for the cost of each item sold and those remaining in inventory
Inventory costing methods
describe how to calculate the costs of goods sold
When inventory costs changes
in periods of deflation and inflation
The COGS will vary
Directly impacts NI
When faced with increasing costs per unit
A company that uses FIFO will have a higher income tax expense
LIFO is not allowed under
IFRS
LIFO conformity rule
IF LIFO is used on the income tax return, it must also be sued in the financial statement reporting
Can company change inventory costing method?
Accounting rules discourage it
Change in method is only allowed if it improves the accuracy of the company’s financial results
The value of inventory can fall below its recorded cost for two reasons
(1) It's easily replaced by identical goods at a lower cost or
(2) It becomes outdated or damaged
GAAP requires that inventory
be written down to its lower value, LCM, being conseravtive
Lower of cost or market
debit COGS, credit Inventory
Inventory is either on
Balance Sheet or Income statement
Note 
Flashcard (43)