MGMT 20000 Chapter Notes - Chapter 6: Financial Statement, Income Statement
Document Summary
When inventory costs are raising, fifo results in. Higher reported amount for inventory in the balance sheet. Higher reported gross profit in the income statement. If inventory costs had been falling, then it"s lifo that would have produced higher reported inventory and gross profit. Weighted-average cost typically produces amounts that fall between the fifo and lifo amounts for both costs of goods sold and ending inventory. Fifo- the amount it reported for ending inventory appears in the balance sheet. Lifo -the amount it is reporting for cost of goods sold appears in the income statement. Fifo is the method that most closely approximates its actual physical flow of inventory. During periods of rising costs, which is the case for most companies, fifo results in higher ending inventory and lower cost of goods sold and higher reported profit than does lifo. The primary benefit of choosing lifo is tax savings.