It also makes various warehouse operations easy. These generally accepted accounting procedures use for accounting purposes help to keep an eye the current market prices and manage helps in manage the remaining balance sheet value. Oldest inventory will always be held back the end of the list. This brings significant loss to company’s business as high cost inventory keeps adding up in the inventory totals for several years. Therefore the commodities at the end of inventory layers become old and gradually lose their value. Presently, LIFO is hardly practiced by businesses since inventories are rarely sold, it makes it difficult for inventory costing methods. This means that inventory located at the back is never bought and therefore remains in the store. LIFO method is like any store where the clerks stock the last item from front and customers purchase items from front itself. It is based on the theory that the last inventory item purchased is the first one to be sold. The LIFO (Last-in, first-out) is an standard inventory method or accounting method mainly used to place an accounting value on inventories. Here’s how you can use these methods for accounting records. In this article, we’ve explained each inventory valuation method in detail with examples. It is important to maintain accurate accounting records. Valuating inventory equations is a process through which companies or businesses offer monetary inventory value for their commodities and generate accurate financial statements. Therefore, it becomes necessary to create a record containing acquisition price, capital gains, current costs and operating expenses. It also helps to keep an eye on the accounting profit. Inventory accounting assigns values and revenue figures that helps one to take good business decisions for a long-term. These are two mostly used inventory methods for record keeping that are feasible on accounting standards. Ideally, there are two inventory valuation methods or accounting methods: LIFO (Last-in, first-out) and FIFO (First-in, first-out). Businesses are often confused about FIFO Vs LIFO. Inventories are the largest current asset of any business.
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