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There are four basic inventory valuation methods (also knows as cost flow assumptions) to account for inventory. They are: First In First Out (FIFO), Last
There are four basic inventory valuation methods (also knows as cost flow assumptions) to account for inventory. They are: First In First Out (FIFO), Last In First Out (LIFO), Weighted Average, and Specific Identification.
Pretend that you are an accountant for Whole Foods and the CFO is considering changing the cost flow assumption used for accounting purposes. They want your input on which one you think is most appropriate.
- Pick one of the 4 and discuss the following:
- Is a cost flow assumption the same as or the actual physical flow of inventory through the business? Why or why not?
- Why did you choose the one that you chose?
- What is the financial statement (balance sheet and income statement) impact of using this one vs. the others.
- What is the tax consequence of using the one that you chose?
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