Many companies use mass-production techniques to produce identical or similar units of a product or service

Apple (smartphones), Coca-Cola (soft drinks), Chevron (gasoline), JPMorgan Chase (processing of checks), and Novartis (pharmaceuticals). These companies use a method of accounting called process costing to value inventory and calculate cost of goods sold. As you learned in financial accounting, there are several methods to value inventory; the choice of method results in different operating income and affects the taxes a company pays and the performance evaluation of managers. When prices are volatile, as has been the case recently with commodities, the impact of using a particular method of inventory valuation can be substantial.

Cryptocurrency and FIFO Versus LIFO Accounting ^*

In 2018, Goldman Sachs established the first institutional cryptocurrency trading operation on Wall Street. Fidelity Investments and others soon followed. With banks trading Bitcoin and other digital currencies for the first time, an important question emerged: How should profits on cryptocurrencies be calculated and taxed?

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Each Bitcoin is very similar to another. The default rule for determining gain or loss on securities—which many accounting experts consider cryptocurrencies to be—is the first-in, first-out (FIFO) method. Under FIFO, the oldest cryptoasset is recorded as sold, regardless of whether that specific asset was sold. This method can trigger higher taxes, as older cryptocurrencies often have the lowest cost basis. Others argue that the last-in, first-out (LIFO) valuation method is more accurate. Under LIFO, the most recently acquired cryptoasset, which often has the highest cost, is regarded as sold, lowering profits and taxes. The FIFO versus LIFO choice is a significant decision for managers and regulators.

This chapter describes how companies, such as Kellogg (cereals) and AB InBev (beer), that produce many identical or similar units of a product using mass-production techniques use process-costing methods to value inventory and cost of goods sold.