1. Money

LIFO may Fall as an Inventory Accounting Method

By October 11, 2009

Follow me on:

LIFO as an inventory accounting method has been in danger for years. A repeal of LIFO was first proposed in 2006 by the Republican party as they saw it as a loophole for windfall profits for the oil companies. It came up again in the House Ways and Means Committee in 2007. It has now surfaced as part of President Obama's 2010 budget.

Why is the LIFO inventory accounting method a target? First, the United States is the only country that allows LIFO. If the U.S. moves to International Financial Reporting Standards, which is proposed, we will have to do away with LIFO beginning in 2012. Companies that use LIFO will have to write up their inventory to meet FIFO standards at that time, but would have seven years to show the increase in gross income.

It is reported by Accounting Today that 40 - 50 percent of businesses that use inventory use LIFO. One of the reasons that LIFO has been under fire is that it has been seen as a way for oil companies to obtain windfall profits, but that is not completely true. Even small businesses use LIFO. Accounting Today points out that LIFO has been a legitimate accounting method in the U.S. since the 1930s.

Does your small business use LIFO? If it is repealed, how much of a problem will it cause you? You can comment here or, better yet, go to our Reader Response invitation and express your thoughts there!

Comments are closed for this post.
Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.