CFP

AAA

Tax Accounting - Inventory Valuation and Flow Methods

Inventory Valuation and Flow Methods
The choice of a basis method can have a significant effect on the amount of taxable capital gains and capital losses in a given tax year, when you sell shares of a security. Common Costing Conventions:

FIFO (first-in, first-out) – Inventory that was obtained/produced first is moved out first

  • FIFO Characteristics: Increased earnings, greater tax liability, current cost inventory
LIFO (last-in, first-out) – Inventory that was most recently obtained/produced is moved out first

  • During a period of rising prices, firm's advantage to adopt LIFO
  • LIFO Characteristics: Reduced earnings, deferral of taxes, understated inventory
Net Operating Losses (NOL)
comments powered by Disqus
Related Articles
  1. Hypothesis Testing in Finance: Concept ...
    Active Trading Fundamentals

    Hypothesis Testing in Finance: Concept ...

  2. Top 6 Ways To Recession-Proof Your Job
    Personal Finance

    Top 6 Ways To Recession-Proof Your Job

  3. The Illusion Of Diversification: The ...
    Fundamental Analysis

    The Illusion Of Diversification: The ...

  4. Solutions For Concentrated Positions
    Investing Basics

    Solutions For Concentrated Positions

  5. Introduction To The Portfolio Dedicated ...
    Investing Basics

    Introduction To The Portfolio Dedicated ...

Trading Center