In: Accounting
In making a changes to a method in an accounting practice/method, why do you think it would be import to compare the reports(FIFO &LIFO) using both to give the reader the results using both methods. IE in your inventory change, what would be COS using both
It is very important to analyze the pricing trend before selecting a method of inventory accounting.
I have prepared an extract to summarize my point. In the extract, you will see with a given purchase price and quantity, the change in the cost of sales (COS) and closing stock value.
FIFO = First in and first out, where inventory which has been purchase first will be taken out first in the case of sales.
LIFO = Last in and last out, in this case, inventory which has been purchased at the latest date would be taken out first.
During a shift in accounting policy of inventory accounting, it is also important to note that the company would have to create a reserve.