Retail Corp began operations in January of 2015. The CFO, Delores Johnson, wants to consider the impact of different accounting methods available under GAAP on the firm's operations and financial statements.
Your task is to write a memo to Ms. Johnson that explains the differences between LIFO, FIFO, and Average Cost inventory cost flow assumptions. You should discuss the effect these methods have on:
1. Income Statement - in particular Cost of goods sold and net income
2. Balance Sheet - Inventory valuation
In order to facilitate your discussion, I have generated the following assumed inventory transactions.
Units Available for Sale
6/1 Beg. Inventory 250 units @ $ 5
6/8 Purchase No. 1 500 units @ $ 6
6/19 Purchase No. 2 300 units @ $ 8
Units Sold
6/20 Sale No. 1 500 units @ $12
6/25 Sale No. 2 200 units @ $12