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Frequent Contributor *

Switching From Average Cost to FIFO

I am considering a switch from average cost accounting to FIFO as of the end of March (fiscal year end). The primary reason for doing this is to be able to generate and use inventory aging reports to manage inventory.

 

If we do this at the end of March, is there a way to make the report retroactive, i.e. report on layers of inventory acquired before the change date? Or will this be possible only for inventory acquired after the change?

 

Thanks,

 

Michael Trotz

Solved
Best answer 02-06-2019

Accepted Solutions
Anonymous
Not applicable

Re: Switching From Average Cost to FIFO

Good day, Michael Trotz.

 

QuickBooks will recalculate previous acquired inventory depending on the start date you’ve selected when switching to FIFO. For additional information about this process, please refer to this article: https://quickbooks.intuit.com/community/Inventory-and-projects/FIFO-Options-in-QuickBooks-Desktop-En....

 

You’re always welcome to visit us again if you need anything else with QuickBooks.

Established Community Backer ***

Re: Switching From Average Cost to FIFO

It is important to note that the Cutover Date is the Earliest date for your data.

"Note that the report only includes balances and transactions from the date of when FIFO began. Any existing balances of items on hand at the date that FIFO is enabled are placed into one costing layer."

 

I recommend these articles:

 

https://www.accountexnetwork.com/blog/2015/02/understand-quickbooks-fifo-costing-making-switch/

https://quickbooks.intuit.com/r/accounting-taxes/average-costing-vs-fifo-whats-best-way-analyze-inve...

9 Comments
Anonymous
Not applicable

Re: Switching From Average Cost to FIFO

Good day, Michael Trotz.

 

QuickBooks will recalculate previous acquired inventory depending on the start date you’ve selected when switching to FIFO. For additional information about this process, please refer to this article: https://quickbooks.intuit.com/community/Inventory-and-projects/FIFO-Options-in-QuickBooks-Desktop-En....

 

You’re always welcome to visit us again if you need anything else with QuickBooks.

Established Community Backer ***

Re: Switching From Average Cost to FIFO

It is important to note that the Cutover Date is the Earliest date for your data.

"Note that the report only includes balances and transactions from the date of when FIFO began. Any existing balances of items on hand at the date that FIFO is enabled are placed into one costing layer."

 

I recommend these articles:

 

https://www.accountexnetwork.com/blog/2015/02/understand-quickbooks-fifo-costing-making-switch/

https://quickbooks.intuit.com/r/accounting-taxes/average-costing-vs-fifo-whats-best-way-analyze-inve...

Frequent Contributor *

Re: Switching From Average Cost to FIFO

Thanks for the references. In our case, I am thinking about a cutover date of April 1, 2018 so that we will (I hope) be able to see a detailed view of inventory layers up to one year before the change (April 1, 2018 to March 31, 2019 ).  Going forward, we would hopefully get a more detailed view over longer periods (going back to the April 1, 2018 cutover date). Please let me know if this is what we can expect.

 

I also expect that making this change on March 31, 2019  will change the 2018-9 income statement (due to the impact on the cost of sales) and the March 31, 2019 balance sheet but hopefully these impacts will be small and worth the benefits in terms of the additional tools available for inventory  management.

 

Thanks,

 

 

Michael Trotz

 

 

Established Community Backer ***

Re: Switching From Average Cost to FIFO

@MichaelTrotz

Changing inventory valuation methods requires you submit a form 3115, Application for change in accounting method

https://www.irs.gov/forms-pubs/about-form-3115

Frequent Contributor *

Re: Switching From Average Cost to FIFO

Thanks. This is an IRS requirement (presumably) but we will be careful to adhere to any Cdn equivalents.

 

Michael Trotz

Established Community Backer ***

Re: Switching From Average Cost to FIFO


@MichaelTrotz wrote:

Thanks. This is an IRS requirement (presumably) but we will be careful to adhere to any Cdn equivalents.

 

Michael Trotz


Sorry, this new community does not let those responding know what your country version is.

Frequent Contributor *

Re: Switching From Average Cost to FIFO

Thanks for the responses. I have decided to go ahead and make the switch right away (effective April 1, 2018) and hopefully we will not experience any issues.

 

 

Michael Trotz

Established Community Backer ***

Re: Switching From Average Cost to FIFO

@MichaelTrotz

 

You Backdated this nearly a year? Whew. I sure hope you made a backup of that file before making the change, in case this doesn't go well for you.

Frequent Contributor *

Re: Switching From Average Cost to FIFO

We will be creating a backup before we make any changes. A data integrity check will also be run right after the change.

 

Have there been file corruption problems when the cutover date has been set too far in the past? As mentioned, I would like to get as detailed an inventory aging report as possible right from the start.

 

Thanks,

 

Michael Trotz

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