Valuation of Stock: LIFO, FIFO, HIFO, and Weighted Average Method Valuing stock (inventory) accurately is crucial for businesses to determine the cost of goods sold (COGS), gross profit, and overall financial position. Different methods are used to value stock, each with its advantages and implications for financial reporting. The most common methods are LIFO (Last In, First Out), FIFO (First In, First Out), HIFO (Highest In, First Out), and the Weighted Average Method. 1. FIFO (First In, First Out) FIFO assumes that the first goods purchased (or produced) are the first to be sold or used. This method values the closing stock based on the most recent purchases, as older inventory is sold first. Key Features of FIFO First items purchased are sold first. The closing stock consists of the most recently purchased goods. Ideal for businesses where goods are perishable (e.g., food, pharmaceuticals). Impact on Financial Statements During inflation: FIFO results in lower COGS and higher ...
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