Accounting Decisions for a New Furniture Store: Inventory and Taxes

This assignment addresses key accounting decisions for a new furniture store, including the choice of inventory system (LIFO, FIFO, or weighted average) and whether to use a perpetual or periodic system. The student argues for LIFO due to its impact on lowering profits and taxes during inflation. The assignment also covers the frequency of physical inventory counts, suggesting daily counts for inventory and weekly for fixed assets. Furthermore, it explores how different inventory costing methods affect net income and income tax obligations, recommending FIFO to maximize net income and LIFO to minimize income tax when inventory costs are rising. The assignment concludes by identifying potential accounting challenges, emphasizing the importance of accounting software and highlighting criticisms of the LIFO method.

Assume you are opening a furniture store. You have some decisions about how to do the
accounting for the business.
Which type of inventory system will you use? Explain your reasons. specific, LIFO, FIFO, or
weighted average? perpetual or periodic?
In any inventory system the best method is to utilize the LIFO(Last In First Out). Since this
inventory system witnesses lower profits and inventory values. FIFO strategy regularly shows
higher profits and inventory esteems. LIFO is favoured when the economy is in a time of
inflation, because it brings down the measure of taxes the organization must compensate for.
Since the company is in the beginning stage of business LIFO is more suitable. (Morse &
Richardson, 2016)
How often do you plan to do a physical count of inventory on hand? Explain your reason.
For the most part, we need to check inventory and Fixed Assets. We need to tally inventory
every day, other fixed assets on a week after week premise, this period can't. We can consider
per our accommodation, however, it ought to be in an immaculate way.
Inventory costs are rising. Which inventory costing method would have the effect of
maximizing net income? minimizing the amount of income tax?
Effect of maximizing net income
The stock should be evaluated as per market price or cost price whichever is higher, If the market
price and the cost prices are almost the same, we should consider the market price because it is
the real and will take care of the inflation as well. Net income is revenue less expenses. To
maximize income, the method needs to increase the revenue and decrease the expenses.
Inventory costing is an expense that should be minimized. When inventory costs are rising, the
newer cost of inventory is higher than the older east Therefore, the FIFO method should The

FIFO m.hod sell older inventory first which would have a lower cost than the newer inventory
when pars are used. The FIFO Method would report lower costs of goods sold when prices are
rising which would result in a higher net income.
Minimizing the amount of income tax
The personal expense will compute the level of Net income. If our net income is high our risk is
likewise high, if the net income is low our expense obligation will be below. For demonstrating
low net income, we need evaluate the cost and market value and select the one which is lower.
Right now we consider cost is lower so we need to evaluate our stock according to cost. To have
a Low Income, net income ought to be minimised Net Income is nothing but revenue less
expenses Inventory costing is an expense and it should be maximised. Subsequently, the LIFO
strategy ought to be utilized. The LIFO method sells more current inventories which would have
a higher cost than the older inventory when prices are rising. The LIFO technique would report a
greater expense of goods sold which would bring down net Income. A lower net Income would
bring about lower tax. (Morse & Richardson, 2016)
What do you think will be the biggest accounting issues you will encounter with running your
business?
Bookkeeping can be one of the most baffling parts of maintaining an independent venture, which
is the reason we prescribed getting joined with bookkeeping programming as right on time as
could be allowed. There are various systems intended for private companies, like QuickBooks
and Xero. Adversaries of LIFO state that it misshapes inventory figures on the monetary record
during high expansion. They additionally call attention to that LIFO gives its clients an
unreasonable tax cut since it can bring down net salary, and consequently, bring down the taxes a
firm faces.

Morse, D., & Richardson, G. (2016). The LIFO/FIFO Decision. Journal Of Accounting
Research, 21(1), 106. https://doi.org/10.2307/2490939