Inventories, and quite simply, stocks of goods and raw materials
in stock make up most of the assets of almost any enterprise. They
same represent the bulk of the cost. In addition, their structure has a decisive influence on the financial results of operations.
As a rule, material values are purchased in batches, entering the company's balance sheet at different times and, accordingly, their price may not be the same.
After a time, capitalized reserves are transferred to production, sale or other disposal. At this point, economists are very important to correctly assess the value of the released values.
Stock assessment methods
Currently, there are several ways to assess the cost of the transferred material values:
At the cost of each unit.
At weighted average cost.
At the cost of the first acquisition of material values (FIFO).
According to the cost of the most recent acquisition of material values (LIFO).
Making a write-off, you need to remember that the same method will be applied in tax accounting.
The right choice of method
In modern accounting, the first and second methods became more common.
FIFO and LIFO cause a lot of questions from economists and business leaders. However, not to take them into account would be a serious omission.
For example, the FIFO method is a great opportunity.improve the image of the company in the eyes of partners. The calculation of the cost of goods sold with its help is quite simple, you should only understand the key points.
First In, First Out
The first arrived-first dropped out, so in translation from English four letters which represent the FIFO method are decoded.
This is an estimate of outgoing goods based onthe assumption that the first values are transferred to production (or for other purposes) that were previously supplied to the parish. That is, the goods are released exactly in the sequence in which they were delivered to the warehouse.
It is easier to remember what exactly the FIFO method meanswith the help of a household example. Imagine a large pile of anything. Let it be applications of applicants in the admissions office of the university. Every day more and more new forms are placed on top of the pile, but the lower ones will be considered first, since they were submitted earlier, despite the pile of new ones. So the goods are written off at the beginning, those that arrived at the warehouse before others with the same nomenclature.
Each batch of material and productionvalues should be displayed in the account as an independent group, if the FIFO method is subsequently applied to it. This condition is mandatory, even if the goods of such a nomenclature have been credited earlier.
When we apply the FIFO method
Пример наиболее удачного использования этого method - writing off quickly perishable goods. We are talking about food (vegetables, fruits, dairy products) or raw materials with a limited shelf life. In order to avoid damage, the previously received stocks must first be realized (or recycled).
Disadvantages of the FIFO method
Since under the influence of inflation over timepurchase prices may rise, when accounting using the FIFO method, the cost of goods sold may be somewhat underestimated. This contributes to artificially overestimation of the financial results of economic activity and, as a result, an increase in the size of the income tax.
The benefits of the FIFO method
Artificially high profit figures -the main plus, which gives the company the FIFO method. At first glance, this is surprising, because the same factor was recorded in the shortcomings. However, the great success of the enterprise increases its creditworthiness and attractiveness when concluding new contracts, attracting investors.
FIFO method. Solution example
There are two ways to calculate the cost of inventories disposed of from the warehouse:
Calculates the total value of all the stocks of a given item, capitalized in the warehouse for the entire period, and the cost of material resources at the end of the reporting period is subtracted from it.
The calculation is based on the unit cost.goods in the first (in time) batch, if the stocks of this income do not cover the disposal completely, the cost of goods from the second, third batch, etc. is taken into account
A detailed study of both options will help a simple task.
The company receives goods at the price of the supplier, and the withdrawal from the warehouse is made by the FIFO method.
At the beginning of the reporting period, 100 boxes of nails were left in the warehouse of the enterprise at a price of 300 rubles each. Total material values in the amount of 30 000 rubles.
Within a month, two more arrived at the warehouse.batches of nails at the following prices: 120 boxes of 400 rubles each and 200 boxes of 450 rubles each. In the same period, 180 boxes of nails dropped out of the warehouse for production purposes.
In accordance with the rules of write-off using the FIFO method, we assume that 100 boxes of nails of 300 rubles each (in the amount of 30,000 rubles) and 80 boxes of 400 rubles each (in the amount of 32,000 rubles) were spent.
At the end of the month, 40 boxes of 400 rubles each (worth 16,000 rubles) and 200 boxes of 450 rubles each (worth 90,000 rubles) remain in stock.
Perform the calculation using the first method. Calculate the average cost of the remaining boxes in the warehouse:
(16 000 + 90 000) / (40 + 200) = 441.66 rubles.
The resulting value is multiplied by the quantity of goods in stock at the end of the reporting period:
441.66 * (40 + 200) = 105,998.40 rubles.
For ease of calculation, round up the amount received to 106,000 rubles.
Calculate the value of retired from the warehouse values:
((100 * 300) + (120 * 400) + (200 * 450)) - 106,000 rubles = 62,000 rubles
In total, during the reporting period, 180 nail crates withdrew from the warehouse for a total amount of 62,000 rubles. Consequently, the average cost of one unit was 345 rubles.
Now once again we will carry out the calculation of the cost price of the disposed goods, using the second method. In this case, the calculations will be simple and take less time.
100 * 300 + 80 * 400 = 62,000 rubles.
The cost of a single unit also amounted to 345 rubles.
The results of the calculations are the same, and this proves that both methods are correct.
This example is quite simple, somakes the calculation was easier for the second option. But, if you want to take into account a large range of products that were received and released during the reporting period several times, the first version of the FIFO calculation will come to the rescue.
The LIFO method
Compare the LIFO method with an already familiar stack of statements. Now a member of the selection committee will begin processing documents from the top.
LIFO method is most effective in conditionsrising inflation. In this case, the financial result reflected in the statements will be more real, and the company will not have to pay taxes at inflated rates.
Based on the above written, we can say thatFIFO method is a convenient and efficient way to account for the material and production values that left the enterprise’s warehouse during the reporting period. Of course, it is not deprived of a number of shortcomings, but in certain situations its use brings unexpected benefits.
A professional economist should masterly master all four methods of accounting.
