The selection of a method of inventory costing is important because it will affect reported profit, income tax expense (and, hence, cash flow), and the inventory valuation reported on the statement of financial position.

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The selection of inventory costing method (such as FIFO, LIFO, or weighted average) can have a significant impact on the reported profit (net income) of a company, as well as its income tax expense and cash flow. This is because each method results in a different valuation of ending inventory, which in turn affects the cost of goods sold and gross profit. Additionally, the ending inventory reported on the statement of financial position will vary depending on the inventory costing method used. Therefore, it is important for companies to carefully consider the method they use and understand the potential impact on their financial statements.

The Selection of a Method of Inventory Costing Is Important