📦 Inventory Flow Master

Calculate Cost of Goods Sold (COGS) and Ending Inventory across FIFO, LIFO, Weighted Average, and Lower of Cost or Net Realizable Value (LCNRV)!

Lesson: Inventory Cost Flow Assumptions

Under GAAP, the cost flow assumption does not need to match the physical movement of goods. Costs flow based on mathematical rules:

Cost Flow Method	COGS Receives	Ending Inventory Holds	Impact During Inflation
FIFO (First-In, First-Out)	Earliest (oldest) costs incurred.	Most recent (newest) purchase costs.	Lowest COGS $\rightarrow$ Highest Net Income $\rightarrow$ Highest Inventory value.
LIFO (Last-In, First-Out)	Most recent (newest) purchase costs.	Earliest (oldest) historical costs.	Highest COGS $\rightarrow$ Lowest Taxable Income (tax shield) $\rightarrow$ Outdated Inventory value.
Weighted Average	Average cost of all available units.	Average cost of all available units.	Smooths price spikes between FIFO and LIFO.
LCNRV / LCM	Write-down to market if NRV drops below cost.	Carried at Lower of Cost or Net Realizable Value.	Conservatism principle prevents overstating asset worth.

The Fundamental Equation of Inventory:
$$\text{Beginning Inventory} + \text{Net Purchases} = \text{Cost of Goods Available for Sale} = \text{COGS} + \text{Ending Inventory}$$

📦 Inventory Flow Master

Inventory Valuation Balanced!

Lesson: Inventory Cost Flow Assumptions