Flow Of Costs

AAA

DEFINITION of 'Flow Of Costs'

Refers to the manner in which costs move through a firm. Typically, the flow of costs is relevant to a manufacturing environment where accountants must quantify what costs are in raw materials, work in process, finished goods inventory and cost of goods sold. Flow of costs does not only apply to inventory, but also to factors in other processes to which a cost is attached such as labor and overhead.

INVESTOPEDIA EXPLAINS 'Flow Of Costs'

There are several methods for accounting for the flow of costs. These include LIFO (last in, first out), FIFO (first in, first out), specific identification and weighted-average cost. U.S. GAAP financial reporting standards require that companies that use the LIFO method report the difference between that method and FIFO in a line item called LIFO reserve. This allows analysts to readily compare firms using different cost flow assumptions.



RELATED TERMS
  1. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  2. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  3. Inventory

    The raw materials, work-in-process goods and completely finished ...
  4. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  5. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
Related Articles
  1. The Working Capital Position
    Investing Basics

    The Working Capital Position

  2. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Understanding The Cash Conversion Cycle
    Investing Basics

    Understanding The Cash Conversion Cycle

  4. In Small Business, Success Is Spelled ...
    Entrepreneurship

    In Small Business, Success Is Spelled ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center