FIFO, LIFO, SI, WA, and the Key to Happiness

As a business, there are a few tricks to the trade when it comes to promoting your business as either uber-successful or relatively minuscule in the market. These methods often yield desirable household-firm relationships for the good of the business when it comes to taxes, competition, and other government enforced regulations. One important factor that determines a business' yearly transaction trends, regarding growth or decline, is the recording of inventory. This step in preparing financial statements is crucial to a business' ability to monitor sales, revenue, expenses, and the ability to produce and sell goods economically. The two major types of preparing journal entries are perpetual and periodic. These methods vary in the time at which transactions are recorded. By adopting one or the other, business can, in essence, choose what they want their yearly financial statements to say.

Furthermore, by adopting a FIFO or LIFO inventory system, a business can adjust their recording strategies based on the type of inventory they have available to sell. FIFO, meaning "First-in-first-out", is commonly employed by companies that sell perishable goods, such as dairy or other foods. This ensures a consistent flow of goods that must be taken off the shelves to the customers. LIFO, meaning "last-in-first-out", records sales based on the most recent purchases by the business. Utilizing these two different methods of recording inventory will yield completely different income statements, as well as cost of goods sold/available and ending inventory. 

Alternatively, a business may choose to employ Specific Identification or Weighted Average. The former is the most exact of the four inventory methods, as it relies on monitoring the specific cost of each individual good sold. This method does not yield different results between perpetual and periodic systems. Weighted average records, as the name implies, the average cost of goods sold/available, to assign an average cost to all goods sold. This result falls in the middle of FIFO and LIFO. 

Now on to the key to happiness. I don't know what it is, but I was hoping you'd read this far to find out. If not, sorry to disappoint. My professor, a very interesting man, is a big fan of Spongebob Squarepants, the Cookie Monster, and jazz. I believe that all accountants share this same list of interests. Please let me know if I am wrong.

Accounting 201: As of week 4...

As of today, September 14, 2016, we are in the fourth week of the Accounting 201 course at the University of Louisville under the teaching of Professor Archie Faircloth. My name is Isaac Mitchell, and I am taking this class because I am pursuing a degree in economics with minors in entrepreneurship, international business, and Spanish so that I may graduate with all the skills necessary to start and run my own business. Specifically, I am looking to move out west to establish a coffee distribution plant supported by coordinated farms, roasteries, and shops. I am slated to graduate relatively quickly, so I see this as an advantage to jump into the growing market before some of my potential competitors who I hope to make consumers of my goods and services.

Before this class, I had never even taken a business class before; I have always been intrigued by the idea of being a businessman, but it took many years to get over the stereotypes of an uptight, stickler of money and to accept the fact that I am a businessman by nature. I love the idea of buying and selling goods and services with the intent of making profit, whether tangible or intangible. I am currently in the process of starting up a small personal coaching business for runners. I have one client, but have not used any capital to start this process; thus, I have already made profit.

Accounting, at first, seemed to be a monotonous, blasé repetition of adding and subtracting. Now, I can understand why people devote a few short years of studying this to become, well, quite wealthy. The practice of accounting is stupidly simple; you literally add and subtract - based on spending and earning - to come up with reports of how successful or  unsuccessful a business/company is relative to their goals and previous trends. However, as I type this, I look to my desk where my Accounting textbook lay open to page 200 something of over 1000. This raises the question: "If accounting is so simple, why must there be such a massive publication on how to do it?" I have found that, though the overall idea of accounting is basic, the numerous and complex rules and tricks and laws and classifications and methods make this subject difficult for many to grasp.

As a committed student and aspiring businessman, I have recognized the importance of utilizing this available resource so that I may improve my knowledge on how businesses should manage their assets (specifically money) in order to yield desired results from business actions, accruing growth on a yearly basis.

At this point in the class, we have learned how to write journal entries and ledgers, how to classify transactions, how to monitor inventory, and many other things that I cannot recall at the moment. I have actually enjoyed the process thus far and look forward to learning more about the exciting world of accounting.