![]() LIFO is like sipping from the top of the drink. So if you wait until the drink is finished (periodic inventory), you get a different order than if you wait until only the first few levels are in the glass before taking a sip, and then letting them put some more levels in, then taking another sip. In contrast, Perpetual inventory is like waiting until one or more levels are in there, taking a sip, and then adding a few more levels, then taking another sip, and so on. Periodic inventory is like waiting until the drink is finished before you start sucking stuff through the straw. In this case, whether you periodically add layers to the drink or make the drink all at once, you’ll still be drinking the layers in the same order (the one in which they were put in the glass). ![]() If you’re using FIFO, you’re essentially taking a straw and sucking from the bottom of the drink. Picture one of those fru-fru drinks with incredients with different densities, so the drink looks like it has layers. Under periodic LIFO and average cost, at least some of the costs of that purchase will go into COGS (even though in reality we couldn’t have sold that inventory) under perpetual LIFO and average cost, none of the costs of that purchase will go into COGS (because it wasn’t available before any of the sales dates). Think of it this way: suppose that we have the sales dates given above and we make a final purchase of inventory on 12/28. Similarly, under perpetual average cost, the early sales get average costs from the earliest inventory (BI or the earliest purchases). Under a periodic LIFO system, it’s very likely that those costs will all remain in EI. Under a perpetual LIFO system, for the sale on 1/15, we have to assign costs from beginning inventory (BI) or purchases on or before 1/15 either way, we’re going to get some very early costs in COGS. However, under LIFO, because the latest costs go to COGS, things are considerably different. The earliest costs are always the earliest costs, no matter when we look. Recalling that under FIFO the earliest costs go to COGS, you can see that the earliest costs are the same whether we look at individual sales on 1/15, 2/27, 4/18, 6/3, 8/22, 10/14, 11/11, and 12/23, or we wait until 12/31. Not an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered.You have it backwards: it affects LIFO (and average cost) but not FIFO.Ĭonceptually, in a periodic inventory system you use all of the goods available for the whole period (one year, for example) and determine which costs go to COGS (and, consequently, which go to ending inventory (EI)), whereas in a perpetual inventory system you use all of the goods available as of the date of each sale to determine the COGS for that sale. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. ![]() Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Investments in securities: Not FDIC Insured All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Carbon Collective does not make any representations or warranties as to the accuracy, timeless, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective's web site or incorporated herein, and takes no responsibility therefor. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Please refer to our Customer Relationship Statement and Form ADV Wrap program disclosure available at the SEC's investment adviser public information website: CARBON COLLECTIVE INVESTING, LCC - Investment Adviser Firm (sec.gov). Registration with the SEC does not imply a certain level of skill or training. Content sponsored by Carbon Collective Investing, LCC, a registered investment adviser. ![]()
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