Thursday, March 31, 2011

Preserving “LIFO” Inventory Accounting

Chamber works to preserve important federal accounting policy

The Chamber has joined the effort to preserve the last-in first-out (LIFO) accounting policy at the federal level – a long-standing method of accounting that has been proposed for repeal in the President’s FY 2012 budget. Such a repeal could negatively impact many of our member companies for whom inventories are a central part of business operations.

For purposes of inventory accounting, LIFO assumes that the cost of the most recently purchased units will be the first costs to be matched with the recent sales on the income statement (i.e. the company sells first the inventory most recently acquired). The repeal of LIFO has been proposed in President Obama’s FY 2012 budget and has also been raised in the context of possible fundamental tax reform by the President’s National Commission on Fiscal Responsibility and Reform.

LIFO is a well-accepted, widely-used method of accounting and the Chamber believes its repeal could negatively impact economic growth and job creation both regionally and nationally. This month, the Chamber joined the LIFO Coalition, an ad hoc group of more than 120 trade associations representing hundreds of thousands of businesses across a range of industries. The Chamber will continue to work with the Coalition in the coming weeks and months in an effort to preserve the LIFO accounting method.

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