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What is the effect on profit and loss of a company when attempts to use , the next method of inventory cost flow methods LIFO -FIFO-Moving Average?

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Question added by Abdullah Aziz Eldain Morsi Elgendy - CMA Candidate , Regional Receivable Accountant , Amiantit Group of Companies
Date Posted: 2016/12/13
Soliman Abd  ALmalak Gendy
by Soliman Abd ALmalak Gendy , مدير ادارة مراقبة حسابات , الجهاز المركزى للمحاسبات

I think that without inflation, all three inventory valuation methods, would produce the same results. *However, prices tend to rise over the years and the company.'s method affects the valuation ratios. *The FFO gives more accurate value of ending inventory on the balance sheet. *The LIFO shows ending inventory on the year much lower than the inventory is truly worth at current prices. *The average cost method uses the average cost to determine the value of COGS and ending inventory

Ahmed mohsen
by Ahmed mohsen , Senior Accountant , Main Poly Clinic

nventory is merchandise purchased by merchandisers (retailers, wholesalers, distributors) for the purpose of being sold to customers. The cost of the merchandise purchased but not yet sold is reported in the account Inventory or Merchandise Inventory.

Inventory is reported as a current asset on the company's balance sheet. Inventory is a significant asset that needs to be monitored closely. Too much inventory can result in cash flow problems, additional expenses (e.g., storage, insurance), and losses if the items become obsolete. Too little inventory can result in lost sales and lost customers.

Because of the cost principle, inventory is reported on the balance sheet at the amount paid to obtain(purchase) the merchandise, not at its selling price.

Inventory is also a significant asset of manufacturers. However, in order to simplify our explanation, we will focus on a retailer.

Frank Mwansa
by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER

LiFO 

In period of inflation there is a tendency with LIFO for closing stocks become undervalued when compared to market value as such the profit is overstated.

FIFO

 In a period of in, there is a tendency with FIFO for materials to be issued at a cost lower than the current market value, although closing stocks tend to be valued at a cost approximating to current market value.

Weighted average pricing

The closing stock values will be a little below current market value and as such the profit will be overstated.