I answered this in another comment but please note the following: That's a good point; however, you're mixing up the idea of selling physical inventory with cost allocation. Using the unit cost on Jan 18 of $40 to expense inventory sold on Jan 8 is counter intuitive. Even though such purchases may have been made after the actual date of sale it is assumed that the costs are taken from the most recent purchases. It's a bit ludicrous when inflation is controlled and prices are stable. The LIFO method only really makes sense if prices are rising (inflation). That way we match recent cost data to higher prices we're charging to provide more relevant information (a very important characteristic to accounting information). Make sense?
@@nicolasgomez5207 That's a good point; however, you're mixing up the idea of selling physical inventory with cost allocation. Using the unit cost on Jan 18 of $40 to expense inventory sold on Jan 8 is counter intuitive. Even though such purchases may have been made after the actual date of sale it is assumed that the costs are taken from the most recent purchases. It's a bit ludicrous when inflation is controlled and prices are stable. The LIFO method only really makes sense if prices are rising (inflation). That way we match recent cost data to higher prices we're charging to provide more relevant information (a very important characteristic to accounting information). Make sense? EDIT: I did notice at the end that I probably confused some viewers by saying that prices were experiencing deflation when it's actually an example of inflation. I believe I meant to say that the way LIFO works is that it expenses recent inventory sold at prices we paid just recently to purchase new inventory, thereby allocating costs on a declining price basis. I'll need to edit this video.
Thanks a lot man!!! I was really confused once the sales came into the picture, but this really helped clear things up!!
Thank you for covering LiFo, Im from the United States!!
You're really good and helpful! Thank you!
ty you have made this so much easier for me
thank you,,,really usefull and easy explanation
What happens with Sales Returns & Allowances? Do you treat them like purchases?
How can we value sales with purchases that weren't there yet?
I answered this in another comment but please note the following:
That's a good point; however, you're mixing up the idea of selling physical inventory with cost allocation. Using the unit cost on Jan 18 of $40 to expense inventory sold on Jan 8 is counter intuitive. Even though such purchases may have been made after the actual date of sale it is assumed that the costs are taken from the most recent purchases. It's a bit ludicrous when inflation is controlled and prices are stable.
The LIFO method only really makes sense if prices are rising (inflation). That way we match recent cost data to higher prices we're charging to provide more relevant information (a very important characteristic to accounting information).
Make sense?
I can hear your canadian accient lol :)
What are you talking Aboat?
Irresponsibly wrong
What is irresponsibly wrong?
Notepirate you are selling inventory that had not arrived yet
@@nicolasgomez5207 That's a good point; however, you're mixing up the idea of selling physical inventory with cost allocation. Using the unit cost on Jan 18 of $40 to expense inventory sold on Jan 8 is counter intuitive. Even though such purchases may have been made after the actual date of sale it is assumed that the costs are taken from the most recent purchases. It's a bit ludicrous when inflation is controlled and prices are stable.
The LIFO method only really makes sense if prices are rising (inflation). That way we match recent cost data to higher prices we're charging to provide more relevant information (a very important characteristic to accounting information).
Make sense?
EDIT: I did notice at the end that I probably confused some viewers by saying that prices were experiencing deflation when it's actually an example of inflation. I believe I meant to say that the way LIFO works is that it expenses recent inventory sold at prices we paid just recently to purchase new inventory, thereby allocating costs on a declining price basis. I'll need to edit this video.
1700 + 2250 = 9950 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
+Ahmed Alsaigh no you also have 300 units x $20= 6,000. So 1700+2250+6000= $9,950