This class has helped me a ton...My only thing is he didn't really answer the question about why anyone would want to use the LIFO method. Does any one have the answer???
One reason may be to increase/reduce net income. Less NI may mean less taxes for a company, so they may use whichever method results in a lower net income.
Daniel Swanger The problem with the LIFO method is that the smaller COGS value will produce a higher net income, and will produce a higher tax. In other words, companies maybe paying less taxes in the beginning, but if they were running low on their inventories, they would be paying higher taxes using the LIFO method. Therefore, companies using the LIFO method would prefer to keep their old inventories remaining in the shelf instead of selling them. Luckily, the lower-tax advantages will allow companies to expend and invest.
Easy answer, let's apply this scenario in real life. Would you buy the old Iphone on the shelf or the most recent ones? Most people would buy the most recent ones. That's LIFO. On the other hand as a seller of a product like milk, you would want the FIRST IN to go out since it expires. That's FIFO.
The type of product being sold often influences which inventory costing method the seller uses. For example, if you were selling computers, you'd probably would want to sell to your customers (and they would probably demand) the latest in computer technology (i.e., computers with the most up-to-date software applications and Operating System, the fast CPUs, the most recent anti-virus/malware protection, etc). So the company would probably use the LIFO method. Of course the company would most likely have tried deeply discounting the earlier computers to get them off the shelves and out of inventory before the newer models arrived, but there are always a few holdovers that a seller can't get rid of. As newer models arrived, they would probably go out the door first, before the out-of-date models. One the other hand, if you were selling a highly perishable item like milk or some vegetables, you'd probably want to use the FIFO method. Another reason why a seller might opt for the LIFO method is to lower the company's tax burden. Ceteris paribus, LIFO results in a higher Cost of Goods Sold than FIFO. A higher COGS translates into a lower Gross Margin, which leads to a lower Operating Income. A lower Operating Income results in a lower taxable income which results in a lower tax expense. Now, the down side to LIFO is that, with all the aforementioned in mind, a higher COGS and resulting lower Operating Income results in a lower Net Income, regardless of the beneficial effects of a lower tax expense. For a sole proprietorship, partnership, LLC or even a S-Corp that doesn't care about how a lower NI might look to external entities, that might not be a cause for concern. But if the company is looking to borrow money, an external entity like a creditor or a potential investor might balk at a low Net Income. Furthermore, if the company is a publicly traded C-Corp, a low Net Income translates into low, or possibly zero, dividend payments to your shareholders...and shareholders like getting those dividend checks. So the moral of the story is make your business decisions wisely and with care. Every decision has a down-side to consider.
Yes! Donald Trump is taking an accounting class, to bad he didn't learn accounting or business in general before he became the president. ;) I think you need a new idol if your going into a career that relies so heavily on ethical values.
FREE PDF Version of the book? www.ebook-freee.com/2013/01/ebook-fundamental-accounting-principles.html Class Handouts by Mr. Krug? blogs.jccc.edu/accounting/
I love your sand pile illustration for LIFO.
"If you can't explain something simply, you don't understand it enough"
-Albert Einstein
Love this guy. Thank you for contributing to my understanding of this topic.
He a good teacher. Love his classes. Less the fact that the videos are 480p. Not to miss the “Tekniq” @ 39.44.
Really good I learned a lot!
Thanks
hahaha i love this guy...much help
Good stuff
nice thanks!
Hi, where can i find the inventory sheets>
how can I get all the written materials
35:57 Ans HO #22
This class has helped me a ton...My only thing is he didn't really answer the question about why anyone would want to use the LIFO method. Does any one have the answer???
One reason may be to increase/reduce net income. Less NI may mean less taxes for a company, so they may use whichever method results in a lower net income.
Daniel Swanger The problem with the LIFO method is that the smaller COGS value will produce a higher net income, and will produce a higher tax. In other words, companies maybe paying less taxes in the beginning, but if they were running low on their inventories, they would be paying higher taxes using the LIFO method. Therefore, companies using the LIFO method would prefer to keep their old inventories remaining in the shelf instead of selling them. Luckily, the lower-tax advantages will allow companies to expend and invest.
Easy answer, let's apply this scenario in real life. Would you buy the old Iphone on the shelf or the most recent ones? Most people would buy the most recent ones. That's LIFO. On the other hand as a seller of a product like milk, you would want the FIRST IN to go out since it expires. That's FIFO.
The type of product being sold often influences which inventory costing method the seller uses. For example, if you were selling computers, you'd probably would want to sell to your customers (and they would probably demand) the latest in computer technology (i.e., computers with the most up-to-date software applications and Operating System, the fast CPUs, the most recent anti-virus/malware protection, etc). So the company would probably use the LIFO method. Of course the company would most likely have tried deeply discounting the earlier computers to get them off the shelves and out of inventory before the newer models arrived, but there are always a few holdovers that a seller can't get rid of. As newer models arrived, they would probably go out the door first, before the out-of-date models. One the other hand, if you were selling a highly perishable item like milk or some vegetables, you'd probably want to use the FIFO method. Another reason why a seller might opt for the LIFO method is to lower the company's tax burden. Ceteris paribus, LIFO results in a higher Cost of Goods Sold than FIFO. A higher COGS translates into a lower Gross Margin, which leads to a lower Operating Income. A lower Operating Income results in a lower taxable income which results in a lower tax expense. Now, the down side to LIFO is that, with all the aforementioned in mind, a higher COGS and resulting lower Operating Income results in a lower Net Income, regardless of the beneficial effects of a lower tax expense. For a sole proprietorship, partnership, LLC or even a S-Corp that doesn't care about how a lower NI might look to external entities, that might not be a cause for concern. But if the company is looking to borrow money, an external entity like a creditor or a potential investor might balk at a low Net Income. Furthermore, if the company is a publicly traded C-Corp, a low Net Income translates into low, or possibly zero, dividend payments to your shareholders...and shareholders like getting those dividend checks. So the moral of the story is make your business decisions wisely and with care. Every decision has a down-side to consider.
Yes! Donald Trump is taking an accounting class, to bad he didn't learn accounting or business in general before he became the president. ;) I think you need a new idol if your going into a career that relies so heavily on ethical values.
FREE PDF Version of the book? www.ebook-freee.com/2013/01/ebook-fundamental-accounting-principles.html
Class Handouts by Mr. Krug? blogs.jccc.edu/accounting/
+VJ NR hi, could you please send the pdf version of the book....I will appreciate very much. thanks lestergallegos@hotmail.com
39:39 HW Ans (New Tek)