Directory UMM :wiley:Public:college:accounting:kimmel:
Financial Accounting:
Tools for Business Decision Making
Kimmel, Weygandt, Kieso
S
EL
1
Chapter 6
Reporting and Analyzing Inventory
After studying Chapter 6, you should be
able to:
Explain the recording of purchases and sales of
inventory under a periodic inventory system.
Explain how to determine cost of goods sold under a
periodic inventory system.
Describe the steps in determining inventory quantities.
Identify the unique features of the income statement for
a merchandising company under a periodic inventory
system.
3
Chapter 6
Reporting and Analyzing Inventory
After studying Chapter 6, you should be able
to:
Explain the basis of accounting for inventories and apply the
inventory cost flow methods under a periodic inventory system.
Explain the financial statement and tax effects of each of the
inventory cost flow assumptions.
Explain the lower of cost or market basis of accounting for
inventories.
Compute and interpret the inventory turnover ratio.
Describe the LIFO reserve and explain its importance for
comparing results of different companies.
4
Merchandise Inventory
owned by the company
in form ready to sale to customers
5
Manufacturing Inventory
Finished goods inventory
Work in process
Raw materials
6
Finished Goods Inventory
Manufactured items that are complete
and ready for sale.
7
Work in Process
Manufactured inventory that has
been placed into production but is
not yet complete.
8
Raw Materials
The basic goods that will be used in
production, but have not been
placed in production.
9
Key difference between
periodic and perpetual
inventory…
is the point at which
the costs of goods sold is
computed.
No attempt is made on date
of sale to record the cost of
merchandise sold...
A physical count of
inventory is taken at end
of period to determine:
Cost of merchandise on hand;
Cost of goods sold.
Page 204 in the book
Comparing Periodic and
Perpetual Inventory Systems
Inventory
Purchased
Item Sold
Point of Sale
End of
Period
Perpetual
Perpetual
Inventory
Purchased
Cost of Goods
Sold Computed
Item Sold
Point of Sale
End of
Period
Periodic
Cost of Goods
Sold
Computed
Businesses that use the periodic
method generally do not have
sophisticated computer systems
required to compute cost of goods sold
when sale is made.
Merchandise Purchases
On May 4 the company bought $ 3,800
worth of merchandise from PW Audio
Supply, Inc.
Task:Record the purchase by getting
information from the Purchase Invoice.
The Purchase Invoice is just a copy of
the sales invoice.
14
•1. Seller
•2.Invoice
Date
•3.Purchaser
•4.Salesperso
n
•5.Credit
terms
•6.Freight
terms
•7.Goods
sold: catalog
no.,descriptio
n,quantity,
price per unit
•8.Total
invoice price
Invoice No. 731
Page 206 in book
Firm Name: Sauk Stero
Attention o f James Hoover, Purchasing Agent
Address 125 Main Street
City Chelsea State Illinois Zip 60915
Date 8/4/98 Salesperson Maone Terms 2/10,n/30 Freight Paid by Buyer
Catalog No. Description
QTY
Price
Amount
15
Merchandise Purchases-Periodic
On May 4 the company bought $ 3,800
worth of merchandise from PW Audio
Purchase
Purchase
Supply,
Inc.
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
Accounts
Payable
May 4 3,800
Cash
Purchases Returns and Allowances - Periodic
On May 8 the company returned $300 worth
of merchandise to PW Audio Supply, Inc.
Purchases
Purchase
Returns & All.
May 4 3800
Freight-In
Purchase
Discounts
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
Freight Costs On Incoming Inventory
18
Freight - In Periodic
On May 9 the company paid $ 150 to have
the merchandise inventory delivered to
them.
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
May 9 150
Purchase Discounts
•Credit terms of a purchase on account may
permit the buyer to claim a cash discount
for prompt payment.
•Credit terms specify the amount of cash
discounts and the time period during which
it is offered.
•2/10,n/30
•1/10 EOM
20
Purchase Discounts
On May 14, the company pays the balance
due on the account within the discount
period
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
May 9 150
Purchases Discounts
rchased $3800 of merchandise
he credit terms are 2/10, n/30
aid within the discount period.
ore discount
$3,800
300
$3,500
70
$3,430
Purchase Discounts
On May 14, the company pays the balance
due on the account within the discount
period
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300 May 4 3,800
May 14 3,500
May 14 70
Cash
May 9 150
May 14 3,430
Sales Revenues Under a Periodic System
are recorded when earned-revenue
recognition principle
must be supported by a business documentwritten evidence
ONLY 1 entry is made for each sale
one to record sale
24
Sales Returns and Allowances
Flip side of purchase returns and allowance
On buyer’s books
GENERAL JOURNAL
May 8 Accounts Payable
Purchase Returns and Allowances
Debit
Credit
300
300
To record goods returned that were purchased on account
On seller’s books
GENERAL JOURNAL
May 8
Sales Returns and Allowance
Accounts Receivable
Debit
Credit
300
To record return of goods delivered to Sauk Stero
300
25
Sales - Under a Periodic System
Assume a sale of $ 3,800 on Account
Cash
Sales
May 4 3,800
Accounts
Receivable
Merchandise
Inventory
Sales Returns &
Allowances
Cost of Goods
Sold
May 4 3,800
What is the Sales Returns
and Allowances Account?
Contra Revenue Account to sales
Used to show how much came in on returns
and allowances
Excessive returns and allowances suggest:
inferior merchandise
inefficiencies in filing orders
errors in billing customers
mistakes in delivery or shipment of goods
27
What Is the Sales Discount
Account?
Contra Revenue Account to sales
Used to disclose amount of cash discounts
taken by customers
28
Sales Discounts
Flip side of purchase discounts
On buyer’s books
GENERAL JOURNAL
Debit
May 14 Accounts Payable
3,500
Credit
Cash
3,430
Inventory
70
On seller’s books
To record payment within discount period
GENERAL JOURNAL
May 14 Cash
Sales Discounts
Accounts Receivable
3500
Merchandise
Debit
Credit
3,430
70
29
Net Purchases
Purchases
$ 325,000
Less: Purchase returns and allowances $ 10,400
Purchase discounts
6,800 17,200
Net purchases
307,800
Net Purchases are gross purchases
adjusted for returns and discounts.
30
Cost of Goods Purchased
Purchases
$ 325,000
Less: Purchase returns and allowances $ 10,400
Purchase discounts
6,800 17,200
Net purchases
307,800
Add: Freight-in
12,200
Cost of goods purchased
320,000
Cost of goods purchased is net
purchases plus freight-in.
31
Companies that use periodic inventory
take a physical count to...
determine ending inventory
compute cost of goods sold
Companies that use perpetual inventory
must take a physical inventory to check
accuracy of “book inventory” to actual
inventory.
32
Taking a Physical Inventory
Counting, weighting or measuring
each type of inventory
Determining ownership of goods
Quantity of each kind of inventory
listed on inventory summary sheets
where unit costs are applied
33
Questions Concerning
Ownership
Do all the goods included in the count
belong to the company?
Does the company own any goods not
included in the count?
34
Goods in Transit
These are goods on board a truck, train,
ship, or plane at the end of the period.
35
Goods in Transit
Who includes these in inventory?
Buyer?
Seller?
The
Company
with
Legal
36
Ownership
passes to
owner here
Seller
Page 245 in book
FOB Shipping Point
Public
Carrier
Co
FOB Destination Point
Seller
Public
Carrier
Co
Buyer
Ownership
passes to
buyer here
Buyer
Shipping Terms
FOB (free on board) shipping pointownership of goods passes to buyer
when public carrier accepts the goods
FOB (free on board) destinationownership of goods remains with the
seller until the goods reach the buyer
38
Consigned Goods
Goods in your store that you don’t
pay for until they sell…
the company does not take
ownership.
39
Income Statement Presentation
The income statement for a
merchandising company is the same
whether a periodic or perpetual
inventory system is used, except for
the
cost of goods sold section.
40
Page 213 in book
PW AUDIO SUPPLY, INC.
Income Statement (Perpetual)
For the Year Ended December 31, 1998
Sales revenues
Sales
Less: Sales returns and allowance
Sales discounts
Net sales
Cost of goods sold
Gross profit
Operating expenses
Store salaries expense
Rent expense
Utilities expense
Advertising expense
Depreciation expense
Freight-out
Insurance expense
Total operating expenses
Net Income
$ 480,000
$12,000
8,000
20,000
460,000
316,000
144,000
45,000
19,000
17,000
16,000
8,000
7,000
2,000
114,000
$ 30,000
Income Statement (Periodic)
Sales revenues
Sale
Less: Sales returns and allowance
Sales discounts
Net sales
Cost of goods sold
Inventory, January
Purchases
Less: Purchase returns and
allowances
$10,400
Purchase discounts
6,800
Net Purchases
Add: Freight-in
Cost of goods purchased
Cost of goods available for sale
Inventory, December 31
Cost of goods sold
Gross profit
Operating expenses
Net Income
30,000
Page 247 in book
$ 480,000
$12,000
8,000 20,000
460,000
36,000
$ 325,000
17,200
307,800
12,200
320,000
356,000
40,000
316,000
144,000
114,000
$
Page 248 in book
Specific Identification
An actual physical flow costing method
in which items still in inventory are
specifically costed to arrive at the total
cost of ending inventory.
Inventory Costing
Specific Identification method
Assumed Cost Flow methods
FIFO- First-in, First-Out- earliest goods
purchased first to be sold
LIFO- Last-in,First-Out- latest goods
purchased the first to be sold
Average Cost Method- costs are charged on the
basis of weighted average unit cost
44
What Makes Cost Flow
Assumptions Necessary?
Changing Prices
45
Use of Cost
Flow
Methods in
Major U.S.
Companies
The FIFO method assumes the
earliest goods purchased are
the first to be sold.
The LIFO method assumes the
latest goods purchased are the
first to be sold.
The average cost method assumes
that goods available for sale are
homogeneous.
The allocation of the cost of goods
available for sale is made on the
basis of the weighted average
unit cost incurred.
The average cost method
assumes that goods available
for sale are homogeneous.
Factors Used in Selecting an
Inventory Cost Method
Income statement effects
Balance sheet effects
Tax Effects
51
Income Statement Effects
In periods of increasing prices
FIFO reports the highest net income
LIFO the lowest
average cost falls in the middle.
In periods of decreasing prices
FIFO will report the lowest net income
LIFO the highest
average cost in the middle.
52
Balance Sheet Effects
In a period of increasing prices costs
allocated to ending inventory using:
FIFO will approximate current costs
LIFO will be understated
53
Why Do Companies Use
Lifo?
Higher cost of goods sold
Lower net income
Lower Income
Taxes
54
The Lower of Cost or Market Basis of
Accounting for Inventories
When the value of inventory is lower
than its cost, the inventory is written
down to its market value by valuing
the inventory at the lower of cost or
market (LCM) in the period in which
the price decline occurs.
55
Lower of Cost or Market (LCM)
departure from cost principle
follows conservatism concept
can be used only after one of the cost
flow methods ( Specific Identification
FIFO, LIFO, or Average Cost)
56
Market Is...
CURRENT REPLACEMENT
COST
57
How Much Inventory Should a
Company Have?
Only enough for sales needs
Excess inventory costs:
storage costs
interest costs
obsolescence - technology, fashion
58
Inventory
Turnover Ratio =
Cost of Goods Sold
Average Inventory
Days in Inventory
=
365 days
Inventory Turnover Ratio
Lifo Reserve And Its Importance For
Comparing Results Of Different Companies
Accounting standards require firms using LIFO
to report the amount by which inventory would
be increased (or on occasion decreased) if the
firm had instead been using FIFO.
This amount is referred to as the LIFO reserve.
Reporting the LIFO reserve enables analysts to
make adjustments to compare companies that
use different cost flow methods.
61
COP Y R I GHT
Copyright © 1999, John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility
for errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
Tools for Business Decision Making
Kimmel, Weygandt, Kieso
S
EL
1
Chapter 6
Reporting and Analyzing Inventory
After studying Chapter 6, you should be
able to:
Explain the recording of purchases and sales of
inventory under a periodic inventory system.
Explain how to determine cost of goods sold under a
periodic inventory system.
Describe the steps in determining inventory quantities.
Identify the unique features of the income statement for
a merchandising company under a periodic inventory
system.
3
Chapter 6
Reporting and Analyzing Inventory
After studying Chapter 6, you should be able
to:
Explain the basis of accounting for inventories and apply the
inventory cost flow methods under a periodic inventory system.
Explain the financial statement and tax effects of each of the
inventory cost flow assumptions.
Explain the lower of cost or market basis of accounting for
inventories.
Compute and interpret the inventory turnover ratio.
Describe the LIFO reserve and explain its importance for
comparing results of different companies.
4
Merchandise Inventory
owned by the company
in form ready to sale to customers
5
Manufacturing Inventory
Finished goods inventory
Work in process
Raw materials
6
Finished Goods Inventory
Manufactured items that are complete
and ready for sale.
7
Work in Process
Manufactured inventory that has
been placed into production but is
not yet complete.
8
Raw Materials
The basic goods that will be used in
production, but have not been
placed in production.
9
Key difference between
periodic and perpetual
inventory…
is the point at which
the costs of goods sold is
computed.
No attempt is made on date
of sale to record the cost of
merchandise sold...
A physical count of
inventory is taken at end
of period to determine:
Cost of merchandise on hand;
Cost of goods sold.
Page 204 in the book
Comparing Periodic and
Perpetual Inventory Systems
Inventory
Purchased
Item Sold
Point of Sale
End of
Period
Perpetual
Perpetual
Inventory
Purchased
Cost of Goods
Sold Computed
Item Sold
Point of Sale
End of
Period
Periodic
Cost of Goods
Sold
Computed
Businesses that use the periodic
method generally do not have
sophisticated computer systems
required to compute cost of goods sold
when sale is made.
Merchandise Purchases
On May 4 the company bought $ 3,800
worth of merchandise from PW Audio
Supply, Inc.
Task:Record the purchase by getting
information from the Purchase Invoice.
The Purchase Invoice is just a copy of
the sales invoice.
14
•1. Seller
•2.Invoice
Date
•3.Purchaser
•4.Salesperso
n
•5.Credit
terms
•6.Freight
terms
•7.Goods
sold: catalog
no.,descriptio
n,quantity,
price per unit
•8.Total
invoice price
Invoice No. 731
Page 206 in book
Firm Name: Sauk Stero
Attention o f James Hoover, Purchasing Agent
Address 125 Main Street
City Chelsea State Illinois Zip 60915
Date 8/4/98 Salesperson Maone Terms 2/10,n/30 Freight Paid by Buyer
Catalog No. Description
QTY
Price
Amount
15
Merchandise Purchases-Periodic
On May 4 the company bought $ 3,800
worth of merchandise from PW Audio
Purchase
Purchase
Supply,
Inc.
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
Accounts
Payable
May 4 3,800
Cash
Purchases Returns and Allowances - Periodic
On May 8 the company returned $300 worth
of merchandise to PW Audio Supply, Inc.
Purchases
Purchase
Returns & All.
May 4 3800
Freight-In
Purchase
Discounts
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
Freight Costs On Incoming Inventory
18
Freight - In Periodic
On May 9 the company paid $ 150 to have
the merchandise inventory delivered to
them.
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
May 9 150
Purchase Discounts
•Credit terms of a purchase on account may
permit the buyer to claim a cash discount
for prompt payment.
•Credit terms specify the amount of cash
discounts and the time period during which
it is offered.
•2/10,n/30
•1/10 EOM
20
Purchase Discounts
On May 14, the company pays the balance
due on the account within the discount
period
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300
May 4 3,800
Cash
May 9 150
Purchases Discounts
rchased $3800 of merchandise
he credit terms are 2/10, n/30
aid within the discount period.
ore discount
$3,800
300
$3,500
70
$3,430
Purchase Discounts
On May 14, the company pays the balance
due on the account within the discount
period
Purchase
Purchase
Returns & All.
Purchases
Discounts
May 4 3800
Freight-In
May 9 150
May 8 300
Accounts
Payable
May 8 300 May 4 3,800
May 14 3,500
May 14 70
Cash
May 9 150
May 14 3,430
Sales Revenues Under a Periodic System
are recorded when earned-revenue
recognition principle
must be supported by a business documentwritten evidence
ONLY 1 entry is made for each sale
one to record sale
24
Sales Returns and Allowances
Flip side of purchase returns and allowance
On buyer’s books
GENERAL JOURNAL
May 8 Accounts Payable
Purchase Returns and Allowances
Debit
Credit
300
300
To record goods returned that were purchased on account
On seller’s books
GENERAL JOURNAL
May 8
Sales Returns and Allowance
Accounts Receivable
Debit
Credit
300
To record return of goods delivered to Sauk Stero
300
25
Sales - Under a Periodic System
Assume a sale of $ 3,800 on Account
Cash
Sales
May 4 3,800
Accounts
Receivable
Merchandise
Inventory
Sales Returns &
Allowances
Cost of Goods
Sold
May 4 3,800
What is the Sales Returns
and Allowances Account?
Contra Revenue Account to sales
Used to show how much came in on returns
and allowances
Excessive returns and allowances suggest:
inferior merchandise
inefficiencies in filing orders
errors in billing customers
mistakes in delivery or shipment of goods
27
What Is the Sales Discount
Account?
Contra Revenue Account to sales
Used to disclose amount of cash discounts
taken by customers
28
Sales Discounts
Flip side of purchase discounts
On buyer’s books
GENERAL JOURNAL
Debit
May 14 Accounts Payable
3,500
Credit
Cash
3,430
Inventory
70
On seller’s books
To record payment within discount period
GENERAL JOURNAL
May 14 Cash
Sales Discounts
Accounts Receivable
3500
Merchandise
Debit
Credit
3,430
70
29
Net Purchases
Purchases
$ 325,000
Less: Purchase returns and allowances $ 10,400
Purchase discounts
6,800 17,200
Net purchases
307,800
Net Purchases are gross purchases
adjusted for returns and discounts.
30
Cost of Goods Purchased
Purchases
$ 325,000
Less: Purchase returns and allowances $ 10,400
Purchase discounts
6,800 17,200
Net purchases
307,800
Add: Freight-in
12,200
Cost of goods purchased
320,000
Cost of goods purchased is net
purchases plus freight-in.
31
Companies that use periodic inventory
take a physical count to...
determine ending inventory
compute cost of goods sold
Companies that use perpetual inventory
must take a physical inventory to check
accuracy of “book inventory” to actual
inventory.
32
Taking a Physical Inventory
Counting, weighting or measuring
each type of inventory
Determining ownership of goods
Quantity of each kind of inventory
listed on inventory summary sheets
where unit costs are applied
33
Questions Concerning
Ownership
Do all the goods included in the count
belong to the company?
Does the company own any goods not
included in the count?
34
Goods in Transit
These are goods on board a truck, train,
ship, or plane at the end of the period.
35
Goods in Transit
Who includes these in inventory?
Buyer?
Seller?
The
Company
with
Legal
36
Ownership
passes to
owner here
Seller
Page 245 in book
FOB Shipping Point
Public
Carrier
Co
FOB Destination Point
Seller
Public
Carrier
Co
Buyer
Ownership
passes to
buyer here
Buyer
Shipping Terms
FOB (free on board) shipping pointownership of goods passes to buyer
when public carrier accepts the goods
FOB (free on board) destinationownership of goods remains with the
seller until the goods reach the buyer
38
Consigned Goods
Goods in your store that you don’t
pay for until they sell…
the company does not take
ownership.
39
Income Statement Presentation
The income statement for a
merchandising company is the same
whether a periodic or perpetual
inventory system is used, except for
the
cost of goods sold section.
40
Page 213 in book
PW AUDIO SUPPLY, INC.
Income Statement (Perpetual)
For the Year Ended December 31, 1998
Sales revenues
Sales
Less: Sales returns and allowance
Sales discounts
Net sales
Cost of goods sold
Gross profit
Operating expenses
Store salaries expense
Rent expense
Utilities expense
Advertising expense
Depreciation expense
Freight-out
Insurance expense
Total operating expenses
Net Income
$ 480,000
$12,000
8,000
20,000
460,000
316,000
144,000
45,000
19,000
17,000
16,000
8,000
7,000
2,000
114,000
$ 30,000
Income Statement (Periodic)
Sales revenues
Sale
Less: Sales returns and allowance
Sales discounts
Net sales
Cost of goods sold
Inventory, January
Purchases
Less: Purchase returns and
allowances
$10,400
Purchase discounts
6,800
Net Purchases
Add: Freight-in
Cost of goods purchased
Cost of goods available for sale
Inventory, December 31
Cost of goods sold
Gross profit
Operating expenses
Net Income
30,000
Page 247 in book
$ 480,000
$12,000
8,000 20,000
460,000
36,000
$ 325,000
17,200
307,800
12,200
320,000
356,000
40,000
316,000
144,000
114,000
$
Page 248 in book
Specific Identification
An actual physical flow costing method
in which items still in inventory are
specifically costed to arrive at the total
cost of ending inventory.
Inventory Costing
Specific Identification method
Assumed Cost Flow methods
FIFO- First-in, First-Out- earliest goods
purchased first to be sold
LIFO- Last-in,First-Out- latest goods
purchased the first to be sold
Average Cost Method- costs are charged on the
basis of weighted average unit cost
44
What Makes Cost Flow
Assumptions Necessary?
Changing Prices
45
Use of Cost
Flow
Methods in
Major U.S.
Companies
The FIFO method assumes the
earliest goods purchased are
the first to be sold.
The LIFO method assumes the
latest goods purchased are the
first to be sold.
The average cost method assumes
that goods available for sale are
homogeneous.
The allocation of the cost of goods
available for sale is made on the
basis of the weighted average
unit cost incurred.
The average cost method
assumes that goods available
for sale are homogeneous.
Factors Used in Selecting an
Inventory Cost Method
Income statement effects
Balance sheet effects
Tax Effects
51
Income Statement Effects
In periods of increasing prices
FIFO reports the highest net income
LIFO the lowest
average cost falls in the middle.
In periods of decreasing prices
FIFO will report the lowest net income
LIFO the highest
average cost in the middle.
52
Balance Sheet Effects
In a period of increasing prices costs
allocated to ending inventory using:
FIFO will approximate current costs
LIFO will be understated
53
Why Do Companies Use
Lifo?
Higher cost of goods sold
Lower net income
Lower Income
Taxes
54
The Lower of Cost or Market Basis of
Accounting for Inventories
When the value of inventory is lower
than its cost, the inventory is written
down to its market value by valuing
the inventory at the lower of cost or
market (LCM) in the period in which
the price decline occurs.
55
Lower of Cost or Market (LCM)
departure from cost principle
follows conservatism concept
can be used only after one of the cost
flow methods ( Specific Identification
FIFO, LIFO, or Average Cost)
56
Market Is...
CURRENT REPLACEMENT
COST
57
How Much Inventory Should a
Company Have?
Only enough for sales needs
Excess inventory costs:
storage costs
interest costs
obsolescence - technology, fashion
58
Inventory
Turnover Ratio =
Cost of Goods Sold
Average Inventory
Days in Inventory
=
365 days
Inventory Turnover Ratio
Lifo Reserve And Its Importance For
Comparing Results Of Different Companies
Accounting standards require firms using LIFO
to report the amount by which inventory would
be increased (or on occasion decreased) if the
firm had instead been using FIFO.
This amount is referred to as the LIFO reserve.
Reporting the LIFO reserve enables analysts to
make adjustments to compare companies that
use different cost flow methods.
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