This inventory may include products that are getting processed or are produced but not sold.On a broad level, it includes raw material, work in progress, and finished goodsthe units of closing stock help in determining the total amount.
Closing Stock Format In Excel Software And OtherImprovement in the inventory management software and other technologies are helping curb this problem. It means that the cost of older inventory is assigned to the cost of goods sold and the cost of the newer inventory is assigned to ending inventory. This method can be used for products which are not perishable or can be obsolete. The cost of purchases we will arrive at the cost of goods available for sale. Also, if there are any inventory losses in that period are higher or lower than the historical rates, it can lead to an inappropriate amount of closing inventory. If the company decides to use LIFO, then the cost of goods sold will be higher (assuming inflation is increasing), which reduces the gross profit and thus reduces the taxes. It is one of the vital reasons companys prefer LIFO accounting over FIFO. One more valid reason is that on using FIFO, the amount of closing stock in the balance sheet will be higher in comparison to FIFO. The current ratio calculated as current assets current liabilities will be higher when FIFO is used. On the other hand, the inventory turnover ratio calculated as Sales Average inventory will be lower if FIFO is used. ![]() CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy.
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