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. Carrying Cost Of Inventory

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

    The direct costs attributable to the production of the goods ...
  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. Inventory

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

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

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center