FIFO method ( English First-In, First-Out, FIFO) is one of the most common methods for estimating the cost of inventory and cost of goods sold ( English Cost of Goods Sold, COGS) during the reporting period. Using this method assumes that inventories are written off in the order in which they were placed on the balance sheet. Thus, older inventories are written off to cost. products sold, and newer stocks remain reflected in balances at the end of the reporting period. The FIFO method can be applied both to the system of periodic and continuous inventory accounting, which is advisable to show by example.
Wholesale and retail company building materials, during the 1st quarter carried out the following operations for the purchase and sale of plasterboard.
* when buying a drywall sheet, its cost is indicated, and when selling - the selling price
At the same time, as of January 1, the balance in the warehouse was 30,000 sheets at a cost of one sheet of 4.25 c.u.
To determine the cost of goods sold, inventory must be written off in the order in which they were entered into the balance sheet. The balances that were at the beginning of the 1st quarter will be written off first, and then, sequentially, the inventories acquired on January 10, February 12 and March 4. In total, 247,000 drywall sheets were sold during the period, and 255,000 were purchased, including the balance at the beginning of the period. Therefore, the balance at the end of the period will be 8,000 units. (255000-247000).
23000+27000+35000+85000+35000+42000 = 247000 units
30000+75000+90000+60000=255000 units
The balances at the beginning of the period and deliveries on January 10 and February 12 will be written off in full, and the delivery for March 4 will not be completely, but only in the amount of 52,000 units. (60000-8000). Thus, the cost of goods sold for the 1st quarter according to the FIFO method will be 1104010 c.u., and the balance at the end of the period will be 37040 c.u. (8000*4.63).
30000*4.25+75000*4.35+90000*4.55+52000*4.63 = 1104010 c.u.
The perpetual accounting system involves recalculating the cost of inventory balance and cost of goods sold after each operation.
January 10 . The balance of drywall sheets in stock is 105,000 units. (30000+75000), while their cost is 453750 c.u.
30000*4.25+75000*4.35=453750 c.u.
January 15 . The cost of goods sold will be 97750 c.u., since it will be written off from the earliest batch of delivery, namely, warehouse balances at 4.25 c.u. for a unit.
23000*4.25=97750 c.u.
The remaining stock in the warehouse will be 82,000 units. (105000-23000) at a cost of 356000 c.u.
7000*4.25+75000*4.35=356000 c.u.
January 27 . When selling 27,000 units. gypsum plasterboard, the remaining 7,000 units will be attributed to the cost price in the first place. at 4.25 c.u., and then 20,000 units. at 4.35 c.u., which will be 116750 c.u.
7000*4.25+20000*4.35=116750 c.u.
The remaining stock in the warehouse will be 55,000 units. (82000-27000) at a cost of 239250 c.u.
55000 * 4.35 \u003d 239250 c.u.
February 3rd . The cost of goods sold will be 152,250 USD. (35000 * 4.35), and the balance of stocks in the warehouse is 20000 units. (55000-35000) at a cost of 87000 c.u. (20000*4.35).
12th of February . The value of the remaining inventory in the warehouse will be 110,000 units. (20000+90000), and its cost price c.u.
20000*4.35+90000*4.55=496500 c.u.
February 21 . Cost of sales will be charged first to the earlier delivery of 20,000 units, and then to 65,000 units. from next delivery, which will be 382750 c.u.
20000*4.35+65000*4.55=382750 c.u.
In this case, the balance of stocks in the warehouse will be 25,000 units. (110000-85000) at a cost of 113750 c.u. (25000*4.55).
March 4 . The warehouse balance of the drywall sheet in the warehouse will be 85,000 units. (25000+60000) at a cost of 391550 c.u.
25000*4.55+60000*4.63=391550 c.u.
March 14th . At a cost of 35,000 units. of sold products, first of all, an earlier delivery of 25,000 units must be attributed, and then 10,000 units. from the next delivery, which will amount to 160050 c.u.
25000*4.55+10000*4.63=160050 c.u.
The remaining stock in the warehouse after this operation will be 50,000 units. (85000-35000) at a cost of 231500 c.u. (50000*4.63).
March, 25 . The cost of goods sold will be 194460 USD. (42000 * 4.63), and the balance of stock in the warehouse is 8000 units. (50000-42000) at their cost of 37040 c.u. (8000*4.63).
Thus, the cost of goods sold for the 1st quarter will be 1104010 c.u. (97750 + 116750 + 152250 + 382750 + 160050 + 194460), and the balance of drywall sheets in the warehouse is 8000 units. at a cost of 37,040 USD, which coincides with the results of calculations in the system of periodic inventory accounting using the FIFO method.
In the article offered to the attention of readers by M.L. Pyatov (St. Petersburg State University) is considering the possibility of using various methods for estimating reserves. The influence of the choice of one or another method on the content is shown. financial statements and the results of its analysis. The "pluses" and "minuses" of each of the methods proposed by the regulatory documents are discussed.
In the previous article (No. 12, December, BUKH.1C for 2011, p. 18) we talked about accounting policy organization as an opportunity to implement the professional judgment of an accountant in order to draw up reports that most adequately present to interested parties a picture of the financial situation of the company.
We tried to see how, in general, the content of an organization's reporting may depend on its chosen accounting policy. We talked about the social responsibility of an accountant as a professional who provides society with information about the financial position of companies - information that determines real management decisions that affect the distribution of capital in the current economy. We could see that each of the elements of an accounting policy is not an opportunity to easily manipulate numbers, but an opportunity to reflect the influence of certain factors on the state of affairs of the company in a way that the same one-way rules for compiling accounting records do not allow this to be done. In this article, we will discuss the possibilities that professional accountant the choice of a method for estimating reserves - an element of accounting methodology, which, perhaps, is most strongly associated with the words "accounting policy".
The choice of inventory valuation method is relevant in the context of changes in the prices for the purchase of company stocks (goods, materials, etc.). Changes in purchase prices and the presence of balances at the end of the period create the problem of their assessment. Indeed, stocks were received during the period at different prices, only part of the stocks was sold (released for production), and if batch accounting was not kept, then how to evaluate the balances, at what prices? And this is not the only question here. After all, how we evaluate the balance of unsold (not used) stocks at the end of the reporting period will also depend on the assessment of stocks sold or used in the production of products, that is, an assessment of the expenses of the period, and hence profits. So, we have three reporting elements, the assessment of which depends on the methods we choose, these are:
1) the company's reserves in the balance sheet as an element of its current assets,
2) period expenses in the income statement, and
3) financial results(profit or loss) in the income statement, and, subsequently (in terms of retained earnings ( uncovered loss)) and in balance.
Consequently, how the indicators will look in the eyes of reporting users depends on the assessment of reserves:
1) solvency of the company,
2) its profitability and
3) the structure of sources of financing of its activities.
The former are determined by the ratio of current assets and short-term liabilities, and the assessment of stocks, respectively, determines the value of the assessment of the firm's current assets as a whole. The latter are calculated by the ratio of profit to assets or expenses reflected in the income statement - here the impact of the assessment of reserves on the value of the financial result takes place. Still others depend on the share of own sources of funds in total liabilities, and this ratio is affected by the amount of retained earnings (uncovered loss).
So, how do you value stocks in terms of price dynamics of their acquisition? Possible options the answer to this question and represent the so-called methods of estimating reserves.
In modern practice, four methods for estimating the reserves of an organization are widely known:
1) estimates of the cost of a unit of stocks;
2) the method of average prices;
3) FIFO method and
4) LIFO method.
The method of estimating the cost of a unit of stocks is used either when the company keeps a batch inventory of stocks, that is, their analytical accounting is organized in such a way that allows you to track their movement in batches. At the same time, in most cases, when using batch accounting, the actual movement (disposal) of stocks is organized by batches. This may become necessary when using in the activities of the company (sale or use in production) perishable current assets, for example, food. Here, if a batch was purchased at the same price, inventory of a specific batch is written off at the corresponding prices.
Also, this method is applicable when it comes to values that are unique to a certain extent. For example, our company is a salon that sells expensive cars. The organization of accounting does not imply their write-off by "groups".
Each fact of sale is subject to separate reflection in accounting, and the reflection of each fact involves the write-off of a particular car at the price of its purchase from suppliers.
In other cases, this method of evaluation is practically inapplicable.
The average price method is the simplest. Maybe that's why it is currently used by most companies and our colleagues love it so much.
It involves the calculation of the average prices of inventories acquired during the period, taking into account their balance at the beginning of the reporting period.
So, suppose we have a balance of goods at the beginning of the period, which is 20 units, valued at 200 rubles per unit (4,000 rubles). During the period, we purchased 2 batches of goods - 50 units at 210 rubles per unit (10,500 rubles), and 100 units at 220 rubles per unit (22,000 rubles). During the period, we sold 130 units of goods at a price of 240 rubles per unit.
Thus, our revenue amounted to 31,200 rubles. We evaluate the cost of goods sold, the value of their balance and, accordingly, the profit on sales, finding the average unit price of the goods using a simple arithmetic average method.
The total volume of goods received for the period in total with their balance at the beginning of the period will be 170 units. Their total cost is 36,500 rubles.
Hence, the average price of a unit of stocks will be 214.7 rubles per unit. We have sold 130 items. Their cost will be 27,911 rubles. Accordingly, the profit from the sale will be estimated at 3,289 rubles. The balance of unsold goods will receive an estimate of 8,589 rubles.
The FIFO method (abbreviation from the English FIFO - First In First Out, “first in - first out”) assumes that we estimate the balance of stocks and their part retired over the period depending on the sequence of their receipt (purchase). Estimating the value of the inventory balance in this case is based on the assumption that the inventory is disposed of in exactly the same sequence as it entered the organization, and, therefore, the inventory balance at the end of the period should be estimated based on the latest purchase prices in chronology. The FIFO method is sometimes compared to a conveyor belt, from which stocks arrive exactly in the sequence in which they were loaded onto it.
Let's estimate by the FIFO method the value of the inventory balance in the above example. We have sold 130 units of an item, and their valuation will assume that we were selling the item, removing it from stock in the warehouse strictly in accordance with the order in which it was purchased. That is, the estimate of the goods sold will be: the value of the balance at the beginning of the period of 20 units of 200 rubles (4,000 rubles), plus 50 units of 210 rubles (10,500 rubles), plus 60 units of 220 rubles (13,200 rubles). Thus, the cost of goods sold will be 27,700 rubles. The profit from sales in this case will be determined as 3,500 rubles (31,200 - 27,700). Accordingly, the balance of unsold goods of 40 units will be assessed based on the purchase price of 220 rubles per unit, that is, it will be valued at 8,800 rubles.
The LIFO method (an abbreviation of the English LIFO - Last In First Out, “last in, last out”) assumes that we evaluate retiring stocks based on the sequence, the reverse of the sequence of their receipt. The essence of the LIFO method is sometimes explained by analogy with a bunker or container where reserves are laid. And so, if we want to get these supplies from such a bunker - a container, we will first have to take out those that got there last. Therefore, evaluating the values that have left over the period, we begin to “choose” the last batch in terms of arrival, if the amount of goods in it is not enough - the penultimate one, and so on, as if returning to the balance at the beginning.
Thus, the cost of sold (used) stocks and determine their "last" prices.
In our example, the LIFO value of goods sold will be: 100 units of 220 rubles (22,000 rubles) and 30 units of 210 rubles (6,300 rubles), that is, we will value the goods sold at 28,300 rubles. Accordingly, the profit in this case will be estimated at 2,900 rubles (31,200 - 28,300). The valuation of the balance of goods will therefore be 8,200 rubles.
So, we can generally characterize the impact of the choice of methods for estimating reserves on reporting indicators as follows:
Speaking about the possibilities of using methods for estimating reserves in practice, first of all, one should pay attention to the fact that at present, regulatory documents on accounting and the Tax Code of the Russian Federation provide organizations with various opportunities to choose a method for estimating reserves for the purposes of financial accounting and tax accounting respectively. In the first case, we are talking about the formation of the accounting policy of the organization, in the second - the accounting policy for tax purposes. Current regulatory legal acts in accounting do not provide for the possibility of using the LIFO method. According to the Tax Code of the Russian Federation, when forming an accounting policy for tax purposes in terms of income tax, organizations can choose any of the 4 methods we have considered.
Here are the relevant instructions normative documents, giving exactly those definitions of methods for estimating reserves, which should be followed in the practice of financial and tax accounting.
Recall that, defining the content of the LIFO method, the “old” version of PBU read as follows (paragraph 20): “valuation at cost of the last acquired inventories (LIFO method) is based on the assumption that the inventories that are the first to enter production (sale) should be valued at the cost of the last in the acquisition sequence. When applying this method, the assessment of inventories that are in stock (in stock) at the end of the month is made at the actual cost of early acquisitions, and the cost of goods, products, works, services sold takes into account the cost of late acquisitions..
So, we have determined the nature of the influence of the choice of one or another method of estimating reserves on the content of financial statements. Now we need to talk about how this influence relates to the overall objective of reporting - to present a true picture of the financial position of the company, as close as possible to reality. Reality in this case should be understood as the impact on the state of affairs of the company changes in the prices of acquisition of its stocks.
Let's see what this impact is. So, we have at least four elements (indicators) of financial statements, the assessment of which should reflect, among other things, the change in the "incoming" prices of stocks - these are:
1) the balance of stocks at the end of the period, reflected in the composition of current assets in the balance sheet,
2) expenses of the period in the income statement,
3) the financial result of the period in the income statement and, as a result,
4) the amount of retained earnings (uncovered loss) in the liabilities side of the balance sheet, if any.
Current assets are resources that should bring us income in the future, including those considered as security for the organization's existing obligations.
First of all, if we talk about the analytical coefficients calculated on the balance sheet, the assessment of current assets determines the value of the overall liquidity ratio (or overall solvency), determined by the ratio of the values of current assets and short-term liabilities. The reality of the assessment of current assets in this case is ensured by its maximum compliance with the current price level. Hence, the most realistic should be recognized as the assessment of current assets in the balance sheet, as close as possible to the "last" prices of their purchase.
Profit is an indicator of the growth of the company's capital, the growth of capital that is not associated with an increase in its liabilities. The demonstration in the reporting of the growth of the company's capital indicates either the possibility of expanding the scale of its activities in comparison with the "reference point", or the possibility of withdrawing from the organization's turnover a part of the funds "earned" by it without prejudice to its financial position, which it had at the beginning of the period, for which profit was calculated in accounting. The change in inventory purchase prices means that in the next reporting period, subject to the continued activity of our company, we will need funds to purchase these inventories in an amount close to the “last” purchase prices of them in the past period.
Consequently, the most realistic values of expenses and financial results will also be given to us by the use in the calculations of the “last” prices in the chronology of purchases.
Now let's pay attention to what allows us to show the use of each of the considered valuation methods (here we will deliberately consider the LIFO method in connection with the possibility of its application in management accounting).
The method of calculating the cost of each unit of inventory, in our opinion, does not need special comments. In this case, we separately keep records of the purchase and sale of each unit of inventory, receiving the corresponding reporting data. Let's move on to the average price method.
The use of the average price method actually allows us to smooth out the impact of changes in inventory purchase prices on financial statements. We calculate the average purchase price of inventories for the period (taking into account the estimate of the balance at the beginning of the period) to estimate the inventory at the end of the period in the asset balance; assessment at average prices is received by the expenses of the period as the cost of inventories written off the balance sheet, reflected in the income statement; "Average" accordingly turns out and profit.
Hence, by applying the method of average prices and thus blurring the impact of their dynamics on reporting indicators, we actually demonstrate to users the absence of a significant impact of price dynamics on the financial position of the company. To what extent and in what cases is it fair? Obviously, we must show the absence of the influence of price changes in those cases where there is (significantly) and really not. In other words, the application of the average price method is suitable for situations where the professional judgment of an accountant allows him to assess the impact of changes in the acquisition prices of current assets on reporting indicators as insignificant or insignificant.
So, for example, prices during the period could change frequently, but by insignificant amounts, while the selling prices of inventories changed accordingly. Hence, the influence of such dynamics can be recognized as insignificant, which allows us to demonstrate the method of average prices.
The FIFO method, as you remember, in the conditions of rising prices shows the maximum estimate of reserves and profits, and in the conditions of falling prices for the acquisition of reserves - the minimum estimate of these indicators. Compliance of the assessment of reserves in the balance sheet at the end of the reporting period with their "last" prices using the FIFO method brings their assessment as close as possible to the nearest state of affairs. And the larger the share of precisely the “last” prices in the calculation of the estimate of the balance of stocks, the more realistic it will be in this sense.
Thus, from the point of view of assessing current assets and calculating the solvency of an organization, the FIFO method is the best assessment option. However, the choice of the FIFO method does not have such a positive effect on the assessment of the financial result. Inventory write-offs under the FIFO method are carried out in the sequence of acquisition, that is, at the "first" prices. This effectively overestimates the financial result in comparison with the level of inventory purchase prices at the reporting date. The amount of profit, therefore, demonstrates the exaggerated ability of the owners to withdraw funds from the company's turnover and / or expand business volumes. The firm looks exaggeratedly profitable.
Using the LIFO method leads us to the opposite situation. The estimate of the balance of stocks at the end of the period in the balance sheet is based in this case on the "first" prices. At the same time, the specificity of the LIFO method lies in the fact that in the presence of a balance, the “first” prices can serve as the basis for valuation for an arbitrarily long time, and after a while the valuation of reserves in the balance sheet completely loses touch with reality. Hence, when applying the LIFO method, the assessment of current assets distorts reality, and first of all this concerns the indicator of current solvency (liquidity), which, in the context of rising prices, becomes underestimated the more the share of the balance of inventories in the total volume of current assets of the company is more significant.
At the same time, the financial result, as a result of an adequate assessment of current costs, on the contrary, receives the most adequate assessment of the real state of affairs. The amount of reported profit takes into account the increase in prices for renewable resources, which determines the volume of the required outflow of free resources in the future. Money. Hence, profit as a “signal” for the distribution of funds more realistically shows the possibilities of owners for such a withdrawal of funds from the company and / or their reinvestment.
Comparison of LIFO and FIFO thus shows us a very important contradiction. Getting (when using the FIFO method) the opportunity to most adequately estimate the balance of inventories, we distort the amount of profit reflected in the financial statements. By estimating profit most realistically (when using the LIFO method), we distort the estimate of the firm's reserves, represented in the asset balance sheet. This situation is a special case of the general paradox of the accounting methodology based on the balance sheet equality of assets and liabilities, defined by Professor Ya.V. Sokolov (1938-2010) as the principle of complementarity*. According to this principle, the more accurate (adequate, close to reality) assessment one indicator of financial statements receives, the less accurate assessment is received by another indicator associated with it. In our case, such a related “pair” of indicators are stocks and profit.
Note:
* I'M IN. Sokolov. Basics of the theory accounting- M.: Finance and statistics, 2000, pp. 38-39.
From this it is obvious that the FIFO method is more focused on the tasks of compiling a balance sheet, and the LIFO method is more focused on the income statement. The dominant role of the balance sheet or statement of financial condition currently led to the abolition of the LIFO method as recommended by Russian PBU and IFRS. However, the LIFO method remains relevant for estimating costs and profits in management accounting. And it is in management accounting, subject to the importance of assessing the relevant indicators for making management decisions, that we can apply the FIFO method in the formation of the management balance sheet and the LIFO method to draw up a management income statement.
In financial accounting, when choosing between the FIFO method and the average price method, we should not forget about the analytical value of profit as a signal to pay dividends. Inadequate perception of the real state of affairs by the owners of the company, in the face of a significant increase in prices for reserves, can lead to an irrational withdrawal of funds from the company's turnover. Based on this, the average price method, when you have to choose between it and FIFO, in our opinion, is more in line with the principle of prudence (conservatism), allowing you not to inspire excessive optimism in the hearts of users of financial statements.
As for tax accounting and the accounting policy of the organization for tax purposes, here the correctness of the choice of the LIFO method in the conditions of rising prices, in our opinion, is absolutely indisputable.
Fifo Method- a method popular in accounting, which implies the valuation of inventories at the cost of initial (first) purchases. The name of the FIFO method stands for "first in - first out", that is, the product that arrived first should be applied first.
Fifo Method- a method of inventory valuation, in which the materials of the first batch are written off first (according to its volume and price), and then the goods of the second batch go, and so on. are executed until the total number of inventories spent per month is written off.
The FIFO method is often referred to as the "natural queue" method. The latter has found its application in the most various fields(informatics, traffic rules and accounting as well). Thanks to fifo, the accountant avoids complex calculations and does not take into account inflationary processes. The essence of the technique is that the specialist calculates material resources companies in the course of their purchases and getting into warehouses.
fifo technique- a popular way to assess the resources of an enterprise, which is actively used in accounting today. Its peculiarity is the chronological copying of the material. The basic principle is contained in the name - "first in - first out". That is, the material values that arrived at the warehouse first should be spent in the first place. Those that came after them - in the second and so on.
In the practical sphere of activity, the write-off of resources occurs in two directions - for sale or for production. It all starts with the first batch (accounting for its volume and price). Then the turn goes to the second batch and so on. The process lasts until all resources are written off or accounted for by the accountant.
When using the usual methodology, the accountant does not make complex assumptions - he works with the volume of all batches (first, second, third, and so on). The end result is the accounting of all products that were used up in production. The result is a complication of calculations and the appearance of excess balances for the last month or for the reporting period used as the basis from the 1st batch (one price), then from the 2nd batch (another price) and so on.
Feature and specificity of the fifo technique in that the goods and material values of real production cannot be spent at one moment. The accountant accepts this fact and writes off resources at different time intervals, taking into account the cost of goods and materials. Only the time of arrival at the warehouse is taken as a basis. Accounting always begins with the materials that arrived at the warehouse in the first place.
Due to this feature of the calculation, the fifo method can be used in companies of various directions, for example, in logistics activities (when placing and storing goods in warehouses), in complex production, in enterprises engaged in wholesale trade, and so on.
But there is an exception. The fifo method cannot be used in organizations that are engaged in retail trade. The reason is that this involves the write-off process at the exact price for each of the items. In fifo it is not possible to do this.
Due to its qualities and accuracy, the fifo method is actively used in accounting and tax area. With its help, it is possible to significantly speed up the calculation processes and not wait for the end of the reporting period. As a result, the accounting department works in a stable mode and manages to carry out accounting in a timely manner. With the fifo method, there are no situations when the accountant is overwhelmed with work by the end of the year or quarter - everything is done evenly. At the same time, we must not forget that when calculating according to the fifo method, it is not taken into account.
In the case of using the fifo method, the following disadvantages must be taken into account :
First, when accounting for goods, inflationary processes are not taken into account. If the consumption of materials occurs unevenly, then at the cost of the first batch, values \u200b\u200bthat arrived at a higher price (for example, increased in price due to inflation) can be written off. As a result, the results obtained after the calculations may turn out to be unrealistic - overestimated. In some cases, this can lead to unpleasant consequences;
Secondly, when calculating the fifo method, there is an overestimation of tax payments and financial indicators companies. This is possible if the consumption of materials is uneven, that is, in different volumes in each of the reporting months. Increase tax payments unprofitable for the company;
Thirdly, the company's cost planning becomes more complicated and the process of enterprise management worsens. The manager, upon the fact of the calculation, receives obviously high data. As a result, he draws up an incorrect policy for the further development of the company. This may cause negative consequences in the future.
To avoid such problems, the fifo method is necessarily taken into account when developing an enterprise policy and when drawing up financial plans for future periods.
The advantages of the fifo method include:
- ease of accounting. The use of this method of calculation allows you to speed up the work of an accountant and get rid of all unnecessary balances for the reporting period;
- Ease of use. The fifo method is especially relevant in those companies where incoming goods are used first. Important point- "Assumptions" of the accountant. If they are correct and have a place in the enterprise, then fifo will be profitable and convenient. This factor is especially relevant for enterprises dealing with perishable products;
- excellent indicators for attracting investments. If the director (manager) of a company (enterprise) decides to raise funds in the production process and interest investors, then the fifo method is the most profitable and convenient (when compared with other accounting methods).
To understand the differences of the fifo method, it is enough to appreciate its practical value. For example, a company's warehouse receives goods in small batches. Each of them rises in price due to inflation. At the same time, the consumption of materials is uneven. As a result, at the end of the month, the accountant undertakes to take into account the current balances from each batch and the materials used in production.
If you use the usual method, then the accountant has to calculate the balances and expenses for each of the batches. At the same time, the balances do not disappear for the next period, they accumulate and further complicate the life of a specialist when making calculations in future months.
The use of fifo is an opportunity for an accountant to write off the first batch in the period when the materials were spent at the enterprise and, most importantly, in the amount of the same batch. At the end of the month, the balances do not disappear (we are talking about materials received at the warehouse of the enterprise), but their accounting is carried out at the cost of the last batch from the end. This simplifies the specialist's calculations.
A special issue is the write-off of products . In some cases, the use of the fifo technique is purely formal. That is, the release of products is carried out taking into account decision the seller (storekeeper), and the goods are accounted for at the price at which the first (oldest) batch was purchased. On the other hand, the use of the fifo method allows you to see real enterprises, track current investments and calculate their payback.
The fifo method is acceptable and is noted in paragraph 73 of the manual on accounting for the company's inventories. In the process of writing off goods using the fifo method, it is worth considering the following rules :
Not only the consumption and receipt of goods should be calculated, but also the presence of a balance in the warehouse;
- in the case of using the usual fifo, the balances are taken into account only once - at the end of each of the months;
- in practice, two fifo methods can be used - simple and modified. The peculiarity of the latter is taking into account the "moving" cost, namely the average price. The average cost is recalculated daily at the time of vacation.
The essence of the fifo method can be disassembled into simple example. In the first reporting month, there is a small balance in the warehouse - 40 toys at a price of 100 rubles each. The next month, another 10 pieces arrive, but at a higher price - 110 rubles. Further - 2 pieces, the price is 115 rubles. As a result, the storekeeper must release 52 toys.
The calculation can be done in two ways:
1. Standard. In this case, the price of the lot to be shipped is - 2*115 + 10*110 + 40*100 = 5.33 thousand rubles. At the same time, the average cost of a toy is 102.5 rubles (5330/52). As a result, there will be 10 toys in the warehouse at a total price of 1.15 thousand rubles, the cost of each is 115 rubles.
2. Modified. In such a situation, the average cost of the toy will be 104.5 rubles. The calculation is made as follows - (12 * 115 + 110 * 10 + 40 * 100) / 62. It is at the price of 104.5 rubles that the goods will be sold. In this case, the buyer receives the product that arrived at the warehouse in the first place.
The total volume of purchases is 104.5 * 52 rubles = 5.434 rubles, and the remaining batch of goods in warehouses - 104.5 * 10 = 1045 rubles.
Of the software, BukhSoft, 1C, Rouse and others are used.
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The "natural queue" method used in service, traffic rules, computer science and other areas is also reflected in accounting. Bypassing complex calculations and not taking into account inflation, the accountant can calculate the material resources of the enterprise as they enter the warehouse. This method of accounting is called FIFO.
FIFO is an accounting method that implies the evaluation of resources in chronological order. The method is based on the principle "First in, first out" (first-in-first-out): during accounting, it is assumed that the first materials received at the warehouse were used up in the first place, the second - in the second, etc. In practice, resources are written off for production or sale in the volume and at the cost of the first batch, then at the cost and volume of the second batch, and so on until all the resources spent are taken into account and written off.
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Using the usual method, the accountant does not make any assumptions and takes into account only the volume from the first, second, third and subsequent batches that was used up in production. As a result - complex calculations and the presence of balances for a month or another reporting period from the first batch (at the same price), from the second batch (at a different price), etc.
Materials and products in real production cannot be spent as they are received. An accountant using the FIFO method makes this assumption by writing off resources received at different time intervals at the cost of materials and products that arrived at the warehouse in the first place.
This method can be used at any enterprise (including production, logistics (during storage and placement in warehouses), wholesale trade organizations). The only type of enterprise where this method cannot be used is retail trade organizations, where write-offs are made at the exact cost of each product.
In tax and accounting, FIFO makes it possible to significantly speed up the calculation process without waiting for the end of the reporting period, and therefore without overloading the accounting department at the end of the quarter or year. However, the method does not take into account the rate of inflation.
The following disadvantages of the FIFO method can be distinguished:
FIFO method without fail is taken into account in the financial planning and development of the company's policy for the next period.
FIFO Benefits:
The difference between conventional methods and FIFO is easiest to see on a real example.
Materials are delivered to the warehouse of the enterprise in batches. Each batch is more expensive than the previous one due to inflation. Materials are spent unevenly.
As a result, at the end of the month, the accountant must take into account all the balances from the first, second, third batch, as well as the materials used.
Using FIFO, the accountant writes off the first batch at the moment when the company used up materials in the volume of the first batch. At the end of the month, he deals with the remains of all batches received at the warehouse, but takes them into account at the cost of the latter. This greatly speeds up and simplifies the calculations.
Trade accounting has always been considered the most routine work. because of a large number calculations and accounting units in documents, an error may occur, the search for which may take up to several days. However, working with automated system Class 365 avoids both errors and wasted time.
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The correct determination of the cost of products manufactured by the enterprise is one of the tasks of the departments that conduct accounting and tax accounting. The expenses of the organization, which represent an estimate of the cost of all material resources used in the production of products, are grouped according to certain criteria, and then summed up in a certain sequence.
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The rules of this grouping are reflected in the accounting policy of the enterprise and are unchanged, at least during the entire reporting year. The complexity of accounting for determining the cost of acquiring goods material assets(hereinafter referred to as goods and materials) increase with the growth of the complexity of each individual production.
LIFO and FIFO are methods that allow you to obtain the financial result of any enterprise, based on different approaches to the cost of goods and materials. However, the choice of approach is limited by law.
The process of writing off material assets for production and determining the actual cost of materials is carried out using the following methods:
It must be borne in mind that the company has the right in the accounting policy to determine the valuation method for all used goods and materials at once, but it is allowed to determine different methods for different groups of material assets.
Decryption is the basis for determining the disposal method.
The LIFO method - LIFO (Last in First out) stands for "Last in, first out". The bottom line is that when writing off inventories, the costs of recent acquisitions are initially taken into account.
FIFO method - FIFO (First in First out) means "first in - first out". Theoretically, it is assumed that the materials that arrived first in time will be used first.
FIFO and LIFO differ from each other in several ways.
And those differences are:
The FIFO method has the following qualities:
The LIFO method has the following features:
The presence of raw material reserves in the company is the main condition for the production of the enterprise and economic entities of a different direction not to stop.
For accounting purposes, they can be used different ways cost definitions.
The valuation of goods and materials based on the LIFO method means that no matter in what order and at what price the goods and materials are purchased, they will be written off for sale or for production in the reverse order of receipt.
Regardless of the sequence of receipt of consignments of goods and materials, the last received consignment at the last price will always be written off.
This method is most suitable for materials that do not have an expiration date, that do not lose their properties and qualities over time.
The main feature of the LIFO method is that it allows you to take into account the effects of inflation in the cost of production.
Its current level has already been taken into account in the cost of the last batch of goods and materials, which is written off for production at a price taking into account the inflation component.
This approach allows you to keep the cost of products in accordance with economic situation in the country and maintain competitive prices for their products in relation to competing manufacturers.
Important! Currently, the LIFO method has been legally abolished.
The organization records the cost of materials at purchase prices. Write-off is carried out using the LIFO method. For example, as an inventory item, we will choose electrodes that an enterprise purchases in packs (packages). Initially, there were 100 packs in the warehouse at the same price of 60,000 rubles per pack, for a total of 6,000,000 rubles.
Within a month, 200 packs of electrodes were released from the warehouse.
At the same time, 100 packs of 70,000 rubles each were written off for production. total cost 7,000,000 rubles and 100 packs (packages) of 80,000 rubles for a total of 8,000,000 rubles.
Let's calculate the cost of decommissioned electrodes:
The accounting department will issue the posting:
Dt bills 20 Cr. accounts 10 - 15,000,000 rubles. – write-off of materials (electrodes) for production.
FIFO, as a method, is based on the fact that, regardless of the sequence in which goods and materials arrive at the warehouse, the very first batch of valuables will be written off.
This approach is simply indispensable if the goods and materials used have an expiration date and their qualities are lost over time.
According to the FIFO method, each group of received materials is considered separately, without taking into account all previous receipts.
The very first batch of materials is written off to production, if this quantity is not enough, then the missing materials are written off from the next batch, and so on.
Currently, the concept of "shelf life" is very relevant for many groups of goods and materials, for example, in the production of meat or dairy products.
The production of complex household appliances is also associated with this problem. New models of TVs, refrigerators and other equipment must be immediately implemented in order to get ahead of their competitors and put their products on the market first. This will allow you to get maximum profit.
Therefore, no matter what price the next batches are purchased, they will be evaluated not at the actual cost, but at the price of the very first batch.
This approach is economically justified when it is necessary to conduct an accurate analysis of the return on investment in inventory and realistically assess the costs.
But this approach also has its drawbacks:
The most convenient method is defined as write-off at average cost.
The essence of this approach lies in the fact that during the reporting month, inventory is written off at discount prices.
As they are taken not the actual cost of goods and materials, but the abstract value obtained by calculation, for example, the planned estimated price or the average price for previous periods (quarter, year).
The average unit cost of goods and materials at the end of the period under review for groups of material assets separately is determined as the ratio of their entire cost (the entire amount of goods and materials at the beginning of the period and the amount of goods and materials purchased during the reporting period) to the number of these materials (the number remaining at the beginning of the period and purchased for the reporting period ).
The cost of written-off inventories is found by multiplying the number of valuables by the average calculated cost.
In turn, the value of the number of remaining goods and materials at the end of the period is found by multiplying their remaining quantity by the average estimated cost of these values.
Let's use the same initial conditions that were considered in the LIFO accounting example.
According to the chosen method, it does not matter from which batch the electrodes will be written off.
Calculate them average cost at the end of the reporting period:
100 p. * 60,000 rubles. + 200 p. * 80,000 rubles. + 100 p. * 80,000 rubles. = 30000000 rubles.
We determine the average cost of one pack of electrodes in the reporting period:
30000000 rub. / 400 p. \u003d 75,000 rubles / p.
Calculate the cost of decommissioned electrodes:
200 p. * 75,000 rubles. = 15,000,000 rubles.
The accountant will issue the following entry:
Dt c. 20 Cr. 10 - 15000000 rubles. – write-off of materials (electrodes) for production.
For a long time, the methods of valuation in accounting differed from tax accounting. LIFO has been abolished for accounting purposes. The Decree introduced a number of changes to certain regulatory legal acts on accounting.
From that moment on, the FIFO method continued to be used only in calculating taxes. On January 1, 2015, the situation was corrected, and the LIFO method was also canceled in tax accounting.
The main reasons for this decision:
As businesses grow, nearly all businesses use a variety of warehouses. Although in themselves they are a source of costs, but without convenient warehouses, the costs of maintaining, storing and quickly delivering goods and materials to the right place increase dramatically.
They raise general expenses and reduce the profitability of any enterprise that uses a large assortment of goods and materials in its activities.
The rapid growth of competition in the warehouse services market leads to increased requirements for warehouse logistics, improved logistics processes and reduced administration costs. To do this, warehouses use different picking principles.
The LIFO picking method is based on the principles under which the stored materials (cargo) can be added and removed from only one end - the top.
As an example, consider a stack of books: to take the second book, you must first remove the one on top, and to take the lowest book, you must first remove all the top ones.
This method is used if the number of goods is limited, and access to them must be organized in a certain order.
The LIFO principle is used in cases where the last materials brought in must be the first to be shipped.
Picking according to the FIFO method takes place according to the principle: the first loaded to the warehouse - the first and we will ship from the warehouse. All other shipments that arrived later are waiting in line.
It must be borne in mind that in its pure form in warehouse activities, methods of picking goods are not used. A combination of different methods for different cargo groups is always chosen.
To organize miscalculations of the effectiveness of the application of methods, special software is used.
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