Accounting - Unit 6 - Part 1 - Inventory

This video series introduces the basics of accounting for inventory under a PERPETUAL inventory system. In the first video of the series, we go over basic journal entries and discuss differences between FIFO, LIFO, Weighted Average and Specific Unit ID methods.

This video and the attached worksheet were prepared by Tony Bell of Thompson Rivers University (TRU) - I encourage educators to freely use, edit and modify these videos and the attached worksheet - they are available under Creative Commons Licenses.

[kennyclleung]

Tony, I wholeheartedly thank you for these videos. Went into my Introductory Financial Accounting class quite worried but watching your videos makes me feel confident going into my midterm. Hope you can upload more videos on more advanced accounting in the future!

[harrisenerson]

Wow are all Canadian professors as good at teaching as you are? I might have to go to Canada to finish schooling ! Super helpful. Thanks so much. 

[pebre]

IFRS's reason for keeping inventory up to date makes sense. So just to make sure I'm clear on this: US companies can have higher book-basis expenses temporarily causing a difference with tax-basis expenses which causes a deferred tax asset? I'm answering my own question again, I know. :) Also, thanks again for the quick reply to my original question!

[pebre]

I will check out the site. Thanks for taking time to reply. Have a good week.

[Tony-Bell]

You've answered your own question. If we assume inventory costs are generally rising, then LIFO will produce lower income and lower taxes. So basically going with LIFO enables US companies an unending tax deferral. What IFRS doesn't like is the idea that theoretically companies have inventory on their books that are decades old (under LIFO). It really doesn't match reality.

[Tony-Bell]

It is an expense....even though it's not got the word "Expense" in it...buying inventory is a cost of doing business...so it's an expense.

[Tony-Bell]

I'm not as familiar with LIFO as I should be, but I don't think it creates a temporary difference. I think it creates higher COGS expense and lower net income for both accounting and tax purposes, so it shouldn't create a future tax asset. (I'm by no means an expert in this area! I'm just going off of what I *think* is happening.) You may get better information from a website called "navigating accounting" (I can't put links here). Search LIFO on that site for good videos on this topic.

[levspage]

Tony, I just want to say thank you for saving my ass. I went to my accounting class very concerned but these videos got me an A! thank you!!!

Great video. Learning lost of things....lol

[hannahrose]

<3 <3 <3 You're awesome!

[pebre]

What is the reasoning behind why LIFO is not allowed under IFRS? I know for tax purposes LIFO is more attractive because it reduces taxable income, but why would a U.S. company want to reduce pretax financial income using LIFO?

Why u have mentioned cost of goods as an expenses?

[davidedwards]

Are you still at TRU? I am in serious need of a tutor for this class

[Tony-Bell]

Sorry my friend, only perpetual. Periodic isn't too hard though. If you understand perpetual well, you can pick up periodic quickly.