ACC E113 Lecture Notes - Lecture 29: Perpetual Inventory, Weighted Arithmetic Mean, Financial Statement
Document Summary
Managers" choice of inventory costing methods: economic circumstances for financial reporting purposes. In principle, managers should choose the method that best reflects the company"s. In practice, most managers choose generally accepted accounting methods. 1) effect on net earnings (managers prefer to report higher earnings for based on two factors: their companies) 2) effect on income taxes (managers prefer to pay the least amount of taxes allowed by law, as late as possible: the least-latest rule) Because accounting standards and tax laws differ, management must also choose an inventory costing method to use on the company"s tax return. Most companies use the same inventory method for both financial reporting and tax reporting. The fifo method in which the oldest, most expensive goods become cost of sales produces the largest cost of sales, the lowest gross profit and thus, the lowest income tax liability. The choice of either using the perpetual inventory system and either fifo or.
