Earnings Under Generally Accepted Inventory Methods and the Prediction of Operating Cash Flows

摘要

The Financial Accounting Standards Board may be about to eliminate LIFO as an acceptable inventory cost flow assumption for U.S. firms to bring U.S. GAAP into compliance with International Accounting Standards. This research examines the ability of earnings, measured under each of the four generally accepted inventory flow methods (FIFO, LIFO, Specific Identification, and Average Costing), to forecast operating cash flows from one to three years ahead. We conclude that LIFO earnings is clearly superior to each of the other three earnings measurement methods in its ability to forecast operating cash flows.