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Your assignment is to prepare and submit a paper on inventory journal. INVENTORY JOURNAL [Your [Due the paper] LIFO (Last In First Out) LIFO is one of the main inventory accounting methods. Under LIFO
Your assignment is to prepare and submit a paper on inventory journal. INVENTORY JOURNAL [Your [Due the paper] LIFO (Last In First Out) LIFO is one of the main inventory accounting methods. Under LIFO system, goods that are added to the inventory recently are sold before the previously added items. When inflation raises the level of prices of products, companies using LIFO method record the trading of the most expensive items first. Although it shows a decrease in the level of profits, but it helps in reducing taxes for the company (Brinlee, n.d.).
FIFO (First In First Out)
Under FIFO system, goods that are added to the inventory at first should be sold before the recently added items. Companies using this method trade the oldest stored items in order to prevent them from destroying or losing their value.
Better for a Small Manufacturing Company
For a small manufacturing company, FIFO inventory system provides the most accurate financial statement. The reason is that this inventory method has a direct impact on the financial statements of a company, such as, income statement, balance sheet, and statement of cash flows. “With FIFO, you get a better estimation of the value of inventory” (Brinlee, n.d.). During the times of inflation, a small manufacturing company can reap benefits by using FIFO because the value of the inventory is usually higher which can make the financial statements of the company look better in terms of net profit and cost of goods sold.
References
Brinlee, D. (n.d.). FIFO Versus LIFO Accounting. Retrieved from http://www.askdeb.
