FIFO, LIFO & AVCO

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
Hi

I left college early today nearly in tears as I dont understand FIFO, LIFO AND AVCO. Asked the tutor for help but as I was the only one to admit I didnt understand he thought I was pathetic, spent a second with me before he carried on handing out more and more exercises to do. Thinking of giving up! Can anyone help?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Hi
    dont let a tutors incompetence affect you, it his their job to make sure you understand, if they dont do that, they are the ones who are the failure!

    FIFO - First in first out. So if stock is bought say on a monthly basis, so Jan you buy 100 x's for £100.00 Then in Feb they cost you £110.00, then in March they Cost you £120.00. At the end of March when you do a stock valuation, FIFO assumes that all of the stock that has moved is the value of the stock first in, i.e £100.00 per x.


    LIFO is the other way round, so you always value your stock on the stock last in.

    AVCO, is valuing stock by average cost over the given time period.

    You should note however that this is only an accounting method, and bears no resemblance to the actual flow of stock. It is purely an accounting method.

    If that doesnt help clear it up, just say, and I will try and find a better way to explain it.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Hi Paul
    I had the same problems and a kind person sent me her notes which really helped, if you give me your email could forward them to you
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Hi

    That would be great - my email is j.samways@poole.gov.uk

    Many thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    I shall forward them when I get home tonight , once I read the notes it all made sense, made me wonder why I had spent a whole week end stressing (nearly in tears) !!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    ... tba!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO
    Paul22 wrote:
    You should note however that this is only an accounting method, and bears no resemblance to the actual flow of stock. It is purely an accounting method.

    Maybe, I've just misunderstood you Paul22, but surely the actual physical flow of stock has to conform to the accounting method in operation and vice versa?

    You can't have the accounts department valuing stocks using a FIFO system, if the stores manager is issuing product via a LIFO one!!! Imagine the discrepancies that would cause at year end!

    Regards,

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    But that is exactly how it works for VALUING purposes only. It doesnt matter whether he is issuing physical stock from the front or the back of the shelf, the stock value in the books only, is where FIFO or LIFO apply
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    I don't think in real life it's quite as simple as that. It may make no different for items such as nuts and bolts etc but not for every case. A scenario where that argument could fall down could be shelf life, say in a large shop selling perishable goods such as vegetables.

    If stock was continually issued from the front while old stock is ignored, then the old 'ignored' stock will become eventually perishable and have to be scrapped/written off. You could of course counter this with effective stock rotation, but that's another issue...

    Therefore, I'm just trying to raise the point that both accounting and issuing systems sometimes do need to be in agreement to be effective.

    Regards,

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Robert,

    Im not going to argue the point anymore. Although in 'real life' it may coincidentally mirror the flow of physical stock, THIS IS NOT A REQUIREMENT OF THE ACCOUNTING SYSTEM WE ARE TALKING ABOUT!!!!

    Regards
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    if so wud it be possible to send me the note too as i was a bit lost at college the other day and didnt really understand. Any help would be great.

    tdickinson@hotmail.com

    cheers
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    I'm with Paul on this one.

    The physical issuing of stock has nothing to do with how you value the inventory. LIFO is in anycase not allowed under IAS - so even if you are dealing with perishable goods and physically issuing them on a LIFO basis you wouldn't use LIFO to value your stock if you wanted to comply with the standards.

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    hi I shall send them Friday evening for you !
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Sorry all, think I was just being argumentative yesterday!

    I blame this strange red mist I now get whenever I log into the forums since this horrible new redesign! That's my excuse anyway... :evil:

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Am I right in thinking that with AVCO you calculate a new average price with every receipt?

    *Feeling stupid*

    Gem
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO
    Gem7321 wrote:
    Am I right in thinking that with AVCO you calculate a new average price with every receipt?
    *Feeling stupid*
    Gem

    For this course you will probably have to calculate a new average price with every monthly purchase of stock. Within that month you may have multiple movement of stock.

    I find that creating a template for working this out really helps.
    Make three headers

    'Receipts' 'Issues' 'Balance'

    and under each of those three headings write

    'Quantity' 'Price' 'Value '

    Now you can work out the average cost of stock as it comes in and moves out. You can use this template for FIFO & LIFO as well.

    With AVCO:-

    Add new stock Quantity and Value to the old stock. The divide the total value by the total quantity to find the new 'average' price.

    For FIFO and LIFO you add the quantity and value to get an overall balance at month end, but you carry down the adjusted individual purchased stock figures :shock: . (Unlike the AVCO where you carry down the one balanced quantity stock value. :) )



    Hope this helps rather than confuses. :wink:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Is there any chance I could get a copy of them notes?

    My address is nmackay@warrington.gov.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    FIFO, LIFO & AVCO

    Hi,
    I'm having a difficulties with FIFO,LIFO and AVCO.
    If it is possible can anyone send me one example with each steps of calculation?
    I'd be greatful.Thanks
    my e-mail is canan@hotmail.co.uk
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    hi

    i dont suppose you can send me those notes too?? there is a virtual drink in it for you


    denise_southard@hotmail.com
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    me too, any notes will help.
    specially the absorbed rates.

    where to get answers for the workbook?!

    abidwarda@gmail.com
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    I also dont understand FIFO, Lifo and Weighted average cost. Has anyone got any notes they can e-mail me. Would be very grateful as really struggling. Just given up evening classes and decided to study with BPP. Not going that well at the moment. Has anyone also got any comments on BPP.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Hi Lisa,
    Are you doing home study with BPP, I did my foundation level home study with them, sibmitted all my skills tests 1/2/3/4 WWC, APE and Health & safety in May of this year and still have not had the results. I started intermediate in Sept but go to college one afternoon and evening a week, the teacher there is great! BPP offer no support for home study, what a waste of money!! Sorry to be so negative, there may be someone out there a little more confident in them but I've not heard of many.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Thanks for your comment. I am wondering if I made the right move. I was going to college two evenings a week but it was all too much - what with work as well. BPP have not even sent me all the right books yet!!! Not sure what to do now.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Hi Susan
    I would like to study in the evening. Where do you study...?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    I study at Bedford college, they have options of full time, One morning and afternoon, One afternoon and one evening or two evenings.... I opted for the afternoon and evening as my employers allowed me each Monday afternoon off. I think most colleges give you an option, give your local one a ring and find out what they have on offer. Luckily I managed to pass the foundation through reading the books but I'm glad I opted for college for the intermediate, there seems to be a lot more to do. Best of Luck!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    Thank you so much Susan.I will give the college a call and find out tomorrow.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:FIFO, LIFO & AVCO

    hi my names Lisa iv been having the same probelms trying to understand Lifo,Fifo and advco my teacher explains it but not very well could u help me or send me an example so i understand.please help me i have my exam next month and im dreading it!!cos of that one thing!!!reply asap :roll: :?:

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