Thank you for the video. I'm currently studying for the CPA and I'm stuck on the question below. Would you be able to explain this? The UNO Company was formed on January 2, year 1, to sell a single product. Over a 2-year period, UNO’s acquisition costs have increased steadily. Physical quantities held in inventory were equal to 3 months’ sales at December 31, year 1, and zero at December 31, year 2. Assuming the periodic inventory system, the inventory cost method which reports the highest amount for each of the following is Answer : Inventory December 31, year 1 = FIFO Cost of sales year 2 = FIFO
If you use FIFO, then the first items that were bought (at a lower cost) get sold first, so when prices increase, then the items that you bought recently (or lastly) have a higher price and therefore contribute to more Inventory in the books
You want to be able to track the differences between the LIFO and FIFO inventory. It's similar to accumulated depreciation. When you depreciate an asset, why do you credit accumulated depreciation instead of the asset? You want to track the total amount that has been depreciated over the years. These accounts are also included in the notes to the financial statements for investors.
Edspira From my understanding, depreciation is mainly recorded to match an expense with the revenue that a LTA is generating and also to avoid recording massive losses upon disposal if the net value of the asset was never reduced over its lifetime. What I don't understand about this specific concept is that the reserve is the difference between a company's internal and external inventory when FIFO is used for internal and LIFO for external. So with that being said, what benefit does disclosing this to external users provide? A company could use any method they want to value inventory for internal records. I'm not trying to argue, just trying to better understand. I get what we are doing but not really what this achieves.
Love the way you explained the material! Made it that much easier for me to understand the concept!
Interesting to see how the inventory accounting method can increase or decrease the taxes payable.
why the volume is very low compare to normal youtube videos? am I the only one who has this problem?
In a question that is only asking for the LIFO reserve, our answer would just be the 15,000, and no need for the AJE?
Thank you for the video. I'm currently studying for the CPA and I'm stuck on the question below.
Would you be able to explain this?
The UNO Company was formed on January 2, year 1, to sell a single product. Over a 2-year period, UNO’s acquisition costs have increased steadily. Physical quantities held in inventory were equal to 3 months’ sales at December 31, year 1, and zero at December 31, year 2. Assuming the periodic inventory system, the inventory cost method which reports the highest amount for each of the following is
Answer : Inventory December 31, year 1 = FIFO
Cost of sales year 2 = FIFO
How would you find the LIFO reserve and LIFO effect on a question that had us use the dollar-value LIFO method?
enjoy your explanation!! i have one question that at times of increase prices why the inventory at fifo increases
If you use FIFO, then the first items that were bought (at a lower cost) get sold first, so when prices increase, then the items that you bought recently (or lastly) have a higher price and therefore contribute to more Inventory in the books
FIFO states more relevant inventory market values on the B/S, where as LIFO states a more relevant COGS to the I/S
thank you sirrr
well explained, thanks.
Big thumbs up!
Is the LIFO Reserve also called the Allowance to Reduce Inventory to LIFO?
Yes, that is the journal entry. COGS Debit and Allowance to reduce Credit. Although I hope you already found out lol.
Thank you!!
thank you so much! :)
thank you so much!
very good
Why couldn't they just directly credit inventory?
You want to be able to track the differences between the LIFO and FIFO inventory. It's similar to accumulated depreciation. When you depreciate an asset, why do you credit accumulated depreciation instead of the asset? You want to track the total amount that has been depreciated over the years. These accounts are also included in the notes to the financial statements for investors.
Edspira From my understanding, depreciation is mainly recorded to match an expense with the revenue that a LTA is generating and also to avoid recording massive losses upon disposal if the net value of the asset was never reduced over its lifetime. What I don't understand about this specific concept is that the reserve is the difference between a company's internal and external inventory when FIFO is used for internal and LIFO for external. So with that being said, what benefit does disclosing this to external users provide? A company could use any method they want to value inventory for internal records. I'm not trying to argue, just trying to better understand. I get what we are doing but not really what this achieves.
thank you