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Welcome . To Our Presentation on Inventories. First in, First Out (FIFO) method for inventory accounting . What is FIFO Why a company take FIFO method for their industry. First in, First Out (FIFO) method for inventory accounting . Advantages of FIFO Method Disadvantages of FIFO Method.

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  1. Welcome To Our Presentation on Inventories

  2. First in, First Out (FIFO) method for inventory accounting • What is FIFO • Why a company take FIFO method for their industry

  3. First in, First Out (FIFO) method for inventory accounting • Advantages of FIFO Method • Disadvantages of FIFO Method

  4. Last in, First Out (LIFO) method for inventory accounting LIFO • LIFO is an acronym that stands for last in, first out. • The LIFO method assumes that the latest goods purchased are the first to be sold. LIFO seldom concedes with the actual physical flow of inventory • Under the LIFO method, the costs of the latest goods purchased are the first to be assigned to cost of goods sold.

  5. Advantages of Last In First Out(LIFO) method : LIFO • In the case of falling prices profit tends to rise due to lower material cost, yet the finished products appear to be more competitive and are at market price. • Over a period, the use of LIFO helps to iron out the fluctuations in profits • In the period of inflation LIFO will tend to show the correct profit and thus avoid paying undue taxes to some extent

  6. Disadvantages of Last In First Out(LIFO) method LIFO (Last In First Out) • Calculation under LIFO system becomes complicated and cumbersome when frequent purchases are made at highly fluctuating rates. • Costs of different similar batches of production carried on at the same time may differ a great deal. • This method of valuation of material is not acceptable to the income tax authorities

  7. WAC • Difference from LIFO and FIFO: • Use of Weighted Average Cost Method:

  8. WAC • Advantages of Weighted Average Cost Method • Consistency • Less Paper Work • Simple Conclusion

  9. WAC • Disadvantages of Weighted Average Cost Method • Less Accurate • Slow or False Reflect in Change

  10. WAC • Effects of Financial Statement • Effects of Income Statement • Effects of Balance Sheet • Effects on Cash Flow Statement

  11. Conclusion • Better control over inventories than a periodic system • The inventory records show the quantities that should be on hand. • The company which use perpetual system can count the goods at any time to see whether the amount of goods actually on hand agrees with the inventory records.

  12. Conclusion • If find shortages , the company can investigate immediately. • It requires additional electrical and additional cost to maintain the subsidiary records. • A computerized system can minimize this cost.

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