标题: LIFO vs FIFO Cash Flow [打印本页] 作者: simeezee 时间: 2011-7-13 16:27 标题: LIFO vs FIFO Cash Flow
if a firm uses LIFO value its inventory to value its inventory, how does it result in higher cash flows compared to a firm that uses FIFO作者: Daniel1985 时间: 2011-7-13 16:27
LIFO will cost COGS to increase...but its a Income stmt item....there is no actual change of cash in hand...its only an acounting thing...right?作者: pacmandefense 时间: 2011-7-13 16:28
right, you have already got it correct to this point.
Further, though COGS is only an accounting thing in your Income Statement, but since it is an expense, more or less of it will determine your taxable income and hence your taxes. And, your taxes are a REAL cashflow.
So, if your COGS is higher under LIFO, your taxable income becomes lower and hence taxes (real cashflow going out) are lower. So your cash in hand is higher.作者: smartpants 时间: 2011-7-13 16:28
Agreed that under LIFO -->higher COGS -->Lower Taxes--> Lower Income-->High Cash In hand
But how are the "cash flows" (i.e. money going in and out of my account) higher under LIFO?作者: Micholien 时间: 2011-7-13 16:28
din get u I_Passed_Level_1作者: thisisbrianly 时间: 2011-7-13 16:28
varundarji,
I'm going to give you the benefit of the doubt and assume that you aren't trolling.
1. If prices are rising then COGS will be higher under LIFO
2. If COGS are higher gross income is lower
3. If gross income is lower and taxes are a percentage of gross income you will pay less taxes under LIFO
4. Taxes are a REAL cash outflow
5. If the taxes (a REAL CASH OUTFLOW) are lower and everything else is the same then our total cash flows will be higher作者: homie 时间: 2011-7-13 16:28
Bankin' -
Well said. The only technical tweaks I have is :
2. If COGS are higher, gross profit and taxable income are lower
3. If taxable income is lower and taxes are a percentage of taxable income you will pay less taxes under LIFO作者: Beatnik 时间: 2011-7-13 16:28
Super I Wrote:
-------------------------------------------------------
> Bankin' -
>
> Well said. The only technical tweaks I have is :
>
> 2. If COGS are higher, gross profit and taxable
> income are lower
> 3. If taxable income is lower and taxes are a
> percentage of taxable income you will pay less
> taxes under LIFO
