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Inventory Valuation and the Effect on Profit.

As officers of One-Hundred-Percent Vitamin Co., Sally and Ed have hired you as an outside accountant to advise them on how the accounting treatment can affect their revenues and expenses. The accounting issues of interest include cash versus accrual basis of accounting, inventory costing methods, inventory valuation methods, lease versus purchase of fixed assets, and the appropriate handling of R & D costs in vitamin development.

Research and explain how "inventory valuation (market, cost, or lower of cost or market)" would affect profit (either by increasing or decreasing profit). In addition, also designate which method is approved by GAAP. Summarize your findings.

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Inventory valuation methods impact the valuation of inventory and the cost of goods sold. There by it affects the balance sheet, income statement and statement of cash flow. There are three inventory-costing methods that are widely used by both public and private companies:

* First-In, First-Out (FIFO) - This method assumes that the first unit making its way into inventory is the first sold.
* Last-In, First-Out (LIFO) - This method assumes that the last unit making its way into inventory is sold first.

* Average Cost - This calculates the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ...

Solution Summary

450+ words of research and explanation on how inventory valuation affects profit and which method is approved by GAAP.

$2.19