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The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve (in the example above, it is $750, i.e. $5250 - $4500). This reserve, a form of contra account , is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.
Using a straight-line depreciation method, you could deduct $16,363 from the taxable income each year for the next 27.5 years. However, you can only use this as long as you still own the property.
In year 3, Jane sells the last machine for 38 and quits the business. She recovers the last of her costs. Her total profits for the three years are the same under all inventory methods. Only the timing of income and the balance of inventory differ. Here is a comparison under FIFO, Average Cost, and LIFO:
Two very popular methods are 1)- retail inventory method, and 2)- gross profit (or gross margin) method. The retail inventory method uses a cost to retail price ratio. The physical inventory is valued at retail, and it is multiplied by the cost ratio (or percentage) to determine the estimated cost of the ending inventory.
The income statement can be prepared in one of two methods. [4] The Single Step income statement totals revenues and subtracts expenses to find the bottom line. The Multi-Step income statement takes several steps to find the bottom line: starting with the gross profit, then calculating operating expenses. Then when deducted from the gross ...
Spreadsheet risk is the risk associated with deriving a materially incorrect value from a spreadsheet application that will be utilized in making a related (usually numerically based) decision. Examples include the valuation of an asset , the determination of financial accounts , the calculation of medicinal doses, or the size of a load-bearing ...
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