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.