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. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  2. Inventory

    The raw materials, work-in-process goods and completely finished ...
  3. Generally Accepted Accounting Principles ...

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

    An asset-management and valuation method in which the assets ...
  5. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  6. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
RELATED FAQS
  1. When might an analyst take an overweight position in a particular stock?

    An analyst may take an overweight position in a stock when he has a high degree of conviction that the stock will outperform. ... Read Full Answer >>
  2. What is the difference the operating cash flow ratio and solvency ratio?

    The operating cash flow ratio and the solvency ratio are two different measures used in fundamental analysis of a company. ... Read Full Answer >>
  3. How can I calculate the operating cash flow ratio on Excel?

    The operating cash flow ratio measures a company's short-term liquidity by relating its operational cash flow to its current ... Read Full Answer >>
  4. Which financial statement can I find noncurrent assets on?

    The value of a company's noncurrent assets is located on its balance sheet. Noncurrent assets are a company's resources that ... Read Full Answer >>
  5. What is the difference between noncurrent assets and noncurrent liabilities?

    Noncurrent assets are a company's assets that are not expected to be liquidated within one fiscal year, while noncurrent ... Read Full Answer >>
  6. What are some common examples of noncurrent assets?

    Noncurrent assets are not expected to be liquidated within one year. Some common examples of noncurrent assets are tangible ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  2. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  3. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  4. Entrepreneurship

    In Small Business, Success Is Spelled With 5 "C"s

    Incorporating these steps will help your business thrive in a competitive market.
  5. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  6. Markets

    Company Survival: Cash Conversion Cycle Is Key

    Find out how to use this figure to analyze a firm's financial condition.
  7. Charts & Patterns

    Are These the Top 3 Value Stocks of 2015?

    A look at three value plays for the long-term investor.
  8. Fundamental Analysis

    Investment Banks: Not a Good Bet Right Now?

    Investment banks might appear safe to investors at the moment, but they're probably more dangerous than advertised.
  9. Entrepreneurship

    The Story Behind Apple's Success

    The marketing helps, and the media and fan frenzy never hurt; but it is the quality of the products that drive Apple's success.
  10. Investing

    Why International Diversification Matters Today

    Given the breadth and diversity of the U.S. economy and market, many U.S. investors feel comfortable keeping their money within U.S. borders.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center