It is typically used during periods of increasing prices. This method closely reflects the actual cost of replacing the current inventory. ![]() ![]() LIFO is another valuation method that assumes the most recently purchased goods are the first to be sold. This calculation often results in higher income tax burdens for the period. However, it can produce lower COGS and higher gross profits. This method is commonly used during an inflationary period. This approach is suitable for many companies because it follows common operations strategies where older items are sold to make room for newer goods. The COGS (cost of goods sold during the period) is based on the stock bought earliest in the accounting period. FIFO (first in, first out) methodįIFO is a valuation method that assumes the first purchased inventory was sold first. Here are a few standard methods to calculate ending inventory. Knowing your ending inventory gives you insight into how to make necessary business decisions related to stock, finances, and even fulfillment needs. What are the different methods to calculate ending inventory? Before filing your income or end-of-year taxes, it is necessary to calculate your ending inventory correctly. The choice can affect the stated value of the company’s assets, profit, and tax liability. Selecting the best method to calculate your ending inventory and staying with that method is imperative to minimize accounting errors and meet company needs.
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