Inventory Cost Flow Assumptions and Limitations of Lifo: A Case Study of a Manufacturing Firm in Albania

,


INTRODUCTION
Despite the product it brings to the market, every type of firm has an inventory. The importance of an inventory is related to it being one of the most crucial current assets in a firm's balance sheet. Based on the definition of inventory, it represents the products that a firm owns and awaits to sell during an accounting period. As it is known, the reason for the existence of a business in the market is making the necessary costs to generate money. This is precisely the reason why the inventory is needed to include all the tangible products that a firm can sell.
To begin with, the type of firm considered in the research I have conducted is a manufacturing firm. In the first chapter of this article, I will provide information about the inventory subgroups, the need for having the inventory cost flow assumptions, and which ones of the latter are accepted and the most adopted under IFRS and the U.S. GAAP accounting standards as well as under the Albanian accounting system. Then, for each of these inventory cost flow assumptions, I will thoroughly analyze the order they follow, how a firm's gross profit, the tax amount, net income, and the cost of the ending inventory are affected by them during inflation and deflation, and each of the inventory cost flow assumptions' advantages and disadvantages. The literature review section will cover the limited information available, previous research, and how I am trying to impact the chosen research topic positively. Being the first to study the furniture-producing sector, I will be able to provide an empirical analysis of the inventory cost flow assumptions and their adoption in a manufacturing firm. An essential part of the empirical analysis is the transactions of 30 units as a concrete example of the cost flow. By the end, the quantitative data of a leading firm among the sofa manufacturing companies in the market based on the empirical analysis will show how valuable the theory is in understanding this article.
Moreover, there is a need to understand how the items leave the inventory and if any order is followed in this process. Even though this order might need to be accurately followed, an inventory cost flow assumption is made to decide how goods are removed from the inventory. More specifically, three inventory cost flow assumptions are used to determine the order of the leaving goods and value the inventory sold at its cost. These inventory cost flow assumptions are the aspects that I will concentrate on by studying them in more detail and thus emphasizing the prohibition of one of those, the LIFO cost flow assumption.
The purpose of this research is to be able to answer any questions related to the inventory cost flow assumptions. Those questions tend to determine the accepted and the most adopted inventory cost flow assumptions under the Albanian accounting system. Additionally, my goal is to have a better insight into why the LIFO cost flow assumption is prohibited from valuing a firm's inventory at its cost. Therefore, this will better show why the Albanian accounting system does not allow its adoption. Another essential aspect is understanding the preferable alternative in the inventory cost flow assumptions in the Albanian manufacturing sector.

Definition of Inventory and Its Importance
"Inventories are assets which comprise goods purchased for consumption to manufacture finished goods (raw materials), any goods in the production process (work-in-progress), and finished goods ready for sale or goods purchased for resale in the normal course of business" (Gadge et al., 2013, p.45). necessary for the next accounting period (Bloomenthal, 2020;Bragg, 2019aBragg, , 2019dBragg, , 2019f, 2020Hayes,2020;Ross, 2019b;Tarver,2018). Furthermore, the cost values given to each of the inventory types are determined through the Inventory Accounting (Kenton, 2020b;Tardi, 2020).
The firms may occasionally consider the Work in Process and Finished Goods Inventory as a group and not separately. The reason behind this choice is the reduction of manufacturing costs. Moreover, the manufacturing firms are advised to keep the In-Process costs as low as possible because it is hard, and it takes time to determine the amount of completion of an asset during this production phase (Bragg, 2019dHayes, 2020;Ross, 2019b).

Raw Materials Inventory
Raw Materials Inventory represents the cost of all the main components not used for further steps in producing the final product. Unlike the Raw Materials Inventory, Work in Process undergoes the production steps. Whereas the Finished Goods are the result of the production steps. Regarding Raw Materials Inventory, a manufacturing firm still owns this stock and includes it as an asset on its Statement of Financial Position during a specific accounting period (Bragg, 2019d;Jones & Smith, 2007;Kieso et al., 2013;Ross, 2019b;Weygandt et al., 2013). On the contrary, the term Cost of Raw Materials means that the costs of the basic materials used in the assembly process must be recognized and recorded by the firm to manufacture the product. Therefore, this is the difference between the Cost of the Raw Materials and the Cost of the Raw Materials Ending Inventory, also known as the Raw Materials Inventory (Rich et al., 2013).
More specifically, Direct and Indirect Materials are included in the group of Raw Materials, each one of them having a specific role in the manufacturing process (Bragg, 2019d;Ross, 2019b). Direct Materials, as implied by the name itself, are those materials that directly affect a manufacturing process by playing an integral role in obtaining the product since they can be directly traced into it (Jones & Smith, 2007;Ross, 2019b). The production process can only be developed with the presence of direct materials. The need to purchase arises when a firm faces the absence of essential materials. Additionally, in a manufacturing company's journal entries, the cost of the materials bought will be debited from the Raw Materials Inventory and credited to Cash or Accounts Payable, depending on the payment conditions set by the firm and the supplier. Whereas the cost of the direct materials used in the assembly process will be credited to the Raw Materials Inventory, and the exact cost will be debited to the Work in Process (WIP) Inventory (Bragg, 2019d).
Furthermore, the other Raw Materials' subsets, namely the Indirect Materials, are those components that affect the manufacturing process indirectly, as they do not have a fundamental role like the direct ones. The cost of the Indirect Materials used in the However, what happens is that the company records the purchases it makes only when it obtains them. This occurs due to the difficulty of deciding whether the legal title of ownership will be on the buyer's or seller's side.In addition, a (manufacturing) firm has to record all the physical inventory sales and the ones it buys in its journal entries until the end of an accounting period. We focus on the end of the accounting period because it mainly happens that the firm deals with a large number of purchase transactions. Some raw materials or products ordered might have yet to arrive at the base during this time. This means that they might have left the supplier but are on their way, and the buyer has not obtained them yet (Averkamp, 2020b;Bragg, 2018c;Needles & Powers, 2009;Weygandt et al., 2013).
Moreover, one of the reasons for their late acquisition is related to the decision to secure the raw materials or the goods obtained. This results in two main possible scenarios: 1. The seller takes ownership of transporting the purchased materials or merchandise and ensures that the raw and finished goods arrive at the buyer's base. All this is included in the term F.O.B Destination. For clarification, F.O.B stands for Free on Board and refers to the transportation of goods by waterways (Averkamp, 2020b;Banton, 2019;Bragg, 2018c;Needles & Powers, 2009;Weygandt et al., 2013;Williams et al.,2018). Furthermore, all the costs related to the production of the sold inventory in the seller's accounting entries are recognized and recorded as part of its COGS. Additionally, the revenue is recorded by the supplier from this sale when the product reaches the buyer. Meanwhile, the ending inventory's amount, through the sales transaction being made, is now decreased (Murray,2019c;Nickolas, 2019;Rich et al., 2013). Regarding the buyer's side, the cost value of the inventory purchased and entered in the firm and the amount of cash that will be given to compensate its value when it receives it or at any later time (Accounts Payable) are recorded in its journal entries.
2. Referring back to the supplier's side: The case where the supplier does not have an ownership or any other responsibility for the purchases made but takes care only of the transportation of the materials or the final products to the shipping carrier. As a result, the ownership and the insurance costs correspond to the buyer. However, the revenue generated is recognized by the supplier when the products are delivered to the carrier. In the accounting terminology, all the process described above is known as F.O.B Shipping or the F.O.B Origin (Free On-Board Shipping or Free On-Board Origin) (Averkamp, 2020b;Bragg,2018c;Needles & Powers, 2009;Weygandt et al.,2013;Williams et al.,2018).
On the contrary, if the seller passes the ownership of the raw materials or finished goods to the buyer, once it ships them to the transportation carrier, then all the costs related to the procurements will be covered only by the buyer. These costs include transportation (freight in), customs duty, and insurance for bringing the products to the main base. They are also recorded on the buyer's journal entries, specifically on its COGS expense account. The other entries made will be the same as those mentioned above. The difference between the two illustrated situations is only related to the ownership title (given to the buyer or the seller), and the costs associated with the party's responsibility (buyer) for ensuring and transporting the acquired inventory (Banton, 2019;Murray,2019c;Nickolas,2019;Rich et al., 2013).

Consigned Goods
To describe this term, we should take into consideration two parties: 1. The Consignor 2. The Consignee The first party includes any firm that decides to deliver some of its materials or merchandise to another firm, the Consignee, as mentioned above. The consignor and the consignee have to sign a contract called The Consigned Shipment, where both parties agree to specific conditions. For instance, one of the conditions sets is that the consignee should pay attention to the delivered materials or finished products so they are not damaged or lost. When the goods are sold to an interested third party, the consignee accumulates and sends the generated revenues to the consignor. The latter should provide the consignee with a sales commission and cover all the expenses for selling those materials or finished goods. More specifically, the consignee has no under-ownership of the inventory sold to any other involved company. This inventory belongs to the consignor instead.
Additionally, the consignee aims to sell the raw materials or the finished products requested. The company acting as a consignor holds the inventory possession until it is sold to the interested party. This company also includes the mentioned inventory in its financial statement by adding the necessary explanations in the notes section found at the bottom (Jones & Smith, 2007;Needles & Powers, 2009;Weygandt et al., 2013).

Sales Returns and Allowances
Taking into consideration a manufacturing firm, it might occur that its customers are not satisfied with the purchased product because of many reasons, such as: · Unfulfillment of their needs or wants · Specifications regarding the particular product produced · Noncompliance with the price given · The way they are treated as customers · How the product is delivered to them Therefore, these reasons might cause a customer to return the acquired product, which will be counted as part of the firm's physical inventory until the end of an accounting period.
Thus, the recorded accounting transactions will be as follows: The amount of cash (current or paid at a future time) will be credited, and the exact amount will be debited in the Sales Returns and Allowances. The second transaction will consist of the overall cost of the product sold. This cost will be debited to the Finished Goods Inventory and credited to the Cost of Goods Sold Account (Rich et al., 2013).

The Inventory Cost Flow Assumptions Accepted and Adopted Under IFRS and U.S. GAAP
The two accounting standards taken as a reference to study the inventory cost flow assumptions in detail are International Financial Accounting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S. GAAP) (Bragg, 2019e). Both systems have in common the inventory cost flow methods such as First in, first out (FIFO), Weighted Average Cost (WAC), and in exceptional cases, The Specific Identification Method. The main difference among the accounting standards mentioned above is that in the IFRS, the LIFO cost flow assumption is prohibited, whereas, in the U.S. GAAP accounting system, it is allowed (Bragg, 2018a(Bragg, , 2018b(Bragg, , 2019cCFA Institute, 2020;Kieso et al., 2013;Murray,2019b;Ross, 2019a;Smith,2019;Tardi,2020;Tun, 2018;Weygandt et al.,2013).
Moreover, the Albanian accounting system following IFRS is defined by the following methods as acceptable inventory cost flow methods: · First in, first out (FIFO) · Weighted Average Cost (WAC) · Specific Identification Method (in particular cases) The most commonly used inventory cost flow assumptions are first in, first out (FIFO) and weighted average cost (WAC) (Dhamo, 2015;Këshilli Kombëtar I Kontabilitetit (KKK), 2016;Lati & Naço, 2009).

First in, first out Inventory Cost Flow Assumption
First in, first out (FIFO) is an inventory cost flow assumption that follows the idea that the first materials or merchandise bought by a manufacturing firm are the first items the firm uses in production or sells to the customer and following the same logic, the finished goods that are firstly available to them (Bragg, 2018a;Carlson, 2019;Encyclopaedia Britannica, 2006;Smith,2019;Tun,2019). Likewise, the cost of goods sold reported on the business' income statement at the end of a specific accounting period is based on the cost of the previous items that first entered into the inventory. In this way, each closing inventory value on the firm's Statement of Financial Position reflects the cost of the most recent purchases and products produced, matching the currently available market prices (Averkamp, 2020c;Bragg, 2018b;Depersio,2015;Gadge et al., 2013; IFT, Chartered Financial Accountants (CFA) Institute, 2020; Jones & Smith, 2007;Kenton, 2020a;Kieso et al., 2013;Lati & Naço, 2009;Murray,2019a;Needles & Powers, 2009;Rich et al., 2013;Tardi, 2020;Weygandt et al.,2013;Williams et al.,2018).
When the prices rise, especially under an inflationary environment, they affect the purchases made by the business. Furthermore, since the market prices increase, adopting the FIFO cost flow assumption becomes necessary as it puts lower costs to the COGS expense account, resulting in an increased remaining inventory cost. Having lower COGS results in an increased gross profit, and the amount of tax that a firm pays to the tax authorities is also greater (Bragg, 2018a(Bragg, , 2018bDepersio,2015;Gadge et al., 2013;Jones & Smith, 2007;Tardi, 2020). Indeed, regarding the other inventory cost flow assumptions, FIFO provides the highest net income, also referring to the case stated above (IFT, CFA Institute, 2020; Kenton,2020a, Needles & Powers, 2009Rich et al., 2013;Smith, 2019). This method aligns with some firms' goals to maximize and have a high net income at the end of an accounting year. As a result, they can have the chance of any further investment in their businesses by interested potential investors. Ultimately, this causes the FIFO cost flow assumption to be more favorably adopted compared to the other mentioned inventory cost flow assumptions (Carlson, 2019;Weygandt et al., 2013;Williams et al., 2018).
Conversely, in a deflationary market, the purchase prices are lower. However, this results in a firm having a more considerable representative value of its COGS on its income statement. This happens because their cost was higher when the purchases were made than the current one. Furthermore, this results in a lower cost of ending inventory and gross profit for the end of the year, as well as a lower taxable income under which the business is taxed. All the respective values we get through the adoption of this inventory cost flow assumption are lower compared to the other assumptions (under deflation) (Bragg, 2018a;Gadge et al., 2013;Needles & Powers, 2009;Weygandt et al., 2013).

The Advantages of the First In, First Out Cost Flow Assumption:
As mentioned previously, by using the FIFO cost flow assumption: 1. The company will obtain the respective closing inventory at the current purchase costs Lati & Naço, 2009;Needles & Powers, 2009). 2. There will be an increased net income at the end of an accounting year Williams et al., 2018).
3. This inventory cost flow assumption will be under the firm's physical movement of goods. It is assumed that a firm uses the raw materials or the finished goods based on the order that it has bought them (Bragg, 2018a(Bragg, ,2018bCarlson, 2019;Jones & Smith, 2007;Kieso et al., 2013;Lati & Naço, 2009;Tardi, 2020;Weygandt et al.,2013). 4. There is a decrease in highly perishable goods. Moreover, the FIFO cost flow assumption is widely spread and thus practical, especially in businesses where perishable materials are utilized in the assembly production process. This process results in finished goods with a higher risk of obsolescence (Bragg, 2018b;Carlson, 2019;Kenton, 2020a;Lati & Naço, 2009;Rich et al., 2013).

The Disadvantages of First In, First Out Cost Flow Assumption:
FIFO cost flow assumption has been known to have certain disadvantages, such as: 1. It seems more accessible and practical than the LIFO cost flow assumption. However, it is still challenging to put it into practice because a firm should own information on an ongoing basis regarding the ending amount of previously purchased inventory after it has been put into production or sold to the customers (Lati & Naço, 2009).

2.
The value of consumed inventory, and thus represented by its cost, may change compared to the actual purchase prices determined by the market during a specific accounting year. Therefore, the amount of cost shown on the COGS might differ from the revenues of the respective period, calculated based on the current and available selling prices. Hence, it affects the firm's gross profit and net income by not providing the exact value for each of them (Bragg, 2018b;Kieso et al., 2013;Lati & Naço, 2009;Williams et al.,2018).

Last in, first Out Cost Flow Assumption
Last in, first out (LIFO) is an inventory cost flow assumption that is based on the presumption that the latest raw materials or finished goods bought are the materials firstly used in the production process or might as well be the components and merchandise initially available for sale to the customers (Averkamp, 2020c;Bragg, 2019c;Depersio,2015;Tun, 2019). As a result, the COGS on a firm's Income Statement at the end of an accounting period is calculated based on the newest products or materials sold. Whereas on its Statement of Financial Position, the closing inventory is valued based on the cost of the earliest goods acquired Rich et al., 2013;Smith, 2019;Tardi, 2020;Weygandt et al., 2013). Considering the case of market inflation, when the prices increase, adopting LIFO as an inventory cost flow assumption result in higher COGS for the firm based on the current market prices. Additionally, COGS is higher compared to the other inventory cost flow assumptions. At the end of a particular accounting period, the firm will face an increased cash flow (more significant revenuesgreater costs) and will have lower gross profit, lower taxable income and the tax imposed to the firm, and lower ending inventory's cost value on hand (Bragg, 2018a;Carlson, 2019;Gadge et al., 2013;IFT, CFA Institute, 2020;Jones & Smith, 2007;Kenton, 2020a;Lati & Naço, 2009;Murray,2020;Needles & Powers, 2009;Williams et al.,2018).
Regarding the aspects presented above, Weygandt et al. (2013) stated that IFRS does not allow the usage of the LIFO cost flow assumption because a firm benefits from it by paying lower taxes and having tax savings. Furthermore, the closing inventory's value at the end of an accounting year will be based on the cost of the earliest inventory acquired. The value will not correspond with the current market purchase prices and, consequently, does not show the exact financial position of the firm (Bragg, 2019c;Carlson, 2019; IFT, CFA Institute, 2020; Kieso et al., 2013;Smith, 2019;Tardi, 2020;Tun, 2018).
On the other hand, when a market faces deflation, the COGS presented in a firm's income statement at the end of a specific period is based on calculating the cost of the inventory sold at the current low market prices. It thus results in 1) a lower COGS than the one calculated using the FIFO or Weighted Average Cost (WAC) flow assumption.
2) a higher ending inventory value, gross income, and income tax liability. After it is taxed, a firm generates more net income than it could by using other inventory cost flow assumptions (Bragg, 2018a;Carlson, 2019;Gadge et al., 2013;Kieso et al., 2013;Needles & Powers, 2009;Smith, 2019).

The Advantage of the Last In, First Out Cost Flow Assumption:
In the case of market inflation, by using the LIFO cost flow assumption, the inventory is valued at its cost as it is based on the prices of the latest purchases being made, which are also in compliance with the available market prices. The costs match the revenues generated during the accounting period considered (Jones & Smith, 2007;Kieso et al., 2013;Lati & Naço, 2009;Needles & Powers, 2009;Rich et al., 2013;Tun, 2019).

The Disadvantages of Last In, First Out Cost Flow Assumption:
The LIFO cost flow assumption has certain disadvantages, such as: 1. It is not easy to be applied (Bragg, 2019c;Lati & Naço, 2009). 2. As an inventory cost flow assumption, it does not match the costs incurred by following the physical movement of goods, meaning that the first goods bought are the first ones to be sold (Carlson, 2019;Kieso et al., 2013;Lati & Naço, 2009;Needles & Powers, 2009;Rich et al., 2013;Tardi, 2020;Weygandt et al., 2013;Williams et al., 2018). 3.
At the end of a respective accounting period, the cost amount shown in the ending inventory does not match with its cost calculated based on the current prices Lati & Naço, 2009;Needles & Powers, 2009;Rich et al., 2013;Tardi, 2020;Weygandt et al.,2013).

Weighted Average Cost Flow Assumption
Weighted Average Cost (WAC) is an inventory cost flow assumption where a weighted average unit cost is used to calculate the cost of the inventory sold and the cost of the ending inventory regarding a specific accounting period (Bragg, 2018dSmith, 2019;Tardi, 2020;Tun, 2019;Tuovila, 2019). The weighted average unit cost must be estimated every time a firm purchases goods. This especially happens in a manufacturing firm, where the number of transactions is relatively high since it is affected by different factors such as goods' depreciation or changes in the customers' needs and preferences. This inventory cost flow assumption is called the "Moving Average Cost Flow Assumption" (Averkamp, 2020c;Jones & Smith, 2007;Kieso et al., 2013;Lati & Naço, 2009;Rich et al., 2013;Weygandt et al.,2013;Williams et al.,2018). Additionally, there is a formula used to find the weighted average cost per product unit, as shown below: Total Cost of the Goods Available for Sale ÷ Total Units Available for Sale = Weighted Average Unit Cost Source: (Bragg, 2018d;IFT, CFA Institute, 2020;Kenton, 2020a;Lati & Naço, 2009;Rich et al., 2013;Tuovila, 2019;Weygandt et al.,2013;Williams et al.,2018).
When the market suffers from inflation (the prices are high) and adopts the inventory cost flow assumption mentioned above, a firm report on its COGS expense account a relatively higher cost value compared to the one obtained using the FIFO cost flow assumption and lower than the one from the LIFO cost flow assumption. Consequently, the taxable income based on which the company is taxed is lower than the income tax from the FIFO cost flow assumption but more significant than the one obtained from the LIFO cost flow assumption. Similarly, this inventory cost flow assumption has the same effect on the firm's net income. Nevertheless, the ending inventory's cost will be lower than the one found by the FIFO cost flow assumption and more significant than that found by the LIFO cost flow assumption. Whereas, in the case of a deflating market, the opposite of what we previously described happens (IFT, CFA Institute, 2020; Kenton, 2020a;Rich et al., 2013;Smith,2019;Tardi,2020;Weygandt et al., 2013).

The Advantages of Weighted Average Cost Flow Assumption:
The Weighted Average cost flow assumption has certain advantages, as stated below. 1. It is logical because applying the above formula gives a weighted average unit price. The latter is then used for calculating the cost of the inventory sold and the cost of closing inventory regarding a specific accounting period. 2. It seems simple to implement Tuovila, 2019). 3. It moderates significant changes between the current selling prices and the weighted average price given for the sold inventory (Lati & Naço, 2009). 4.
By using this inventory cost flow assumption, the ending inventory cost will approximate the current market price cost.

The Disadvantages of Weighted Average Cost Flow Assumption:
The Weighted Average cost flow assumption has certain disadvantages, as stated below. 1.
Estimates Inventories' Outflows at imaginary costs. For instance, considering the current market prices, the weighted average cost found per unit is not concrete.

2.
Calculation of the unit cost through the Weighted Average Cost Formula leads to rounding and, therefore, inaccuracy (Lati & Naço, 2009

LITERATURE REVIEW
In this article section, I will provide prior research about the inventory cost flow assumptions and their effect on a firm's gross profit, the tax imposed, net income, and its ending inventory. The second research taken into consideration is the adoption of the inventory cost flow assumptions by respective industry types, such as the textile industry, and last but not least is their adoption by the manufacturing industry. Besides the research on the inventory cost flow assumptions, the other research I have worked on provides better insight into the most preferred inventory cost flow assumption to be adopted in Nigerian textile firms. I chose to discuss this specific industry in Nigeria because of the limited amount of research conducted both in my country Albania and internationally on all the sectors, especially the manufacturing one. The third research I have studied reflects the importance of inventory cost valuation techniques used in manufacturing firms in Bangladesh. This study is closely related to the sector I aim to focus on in this article: manufacturing. My home country, Albania, provides entirely theoretical information on this topic, contained in books such as the ones written by Albanian authors like Dhamo (2015) and Lati and Naço (2009), whose work I have briefly mentioned in the theoretical background part above. With my work in the form of empirical analysis, I highly aim to fill the literature gap in Albania by providing a thorough study on inventory cost flow assumptions.
Prior research conducted by Simeon and John (2018) in the context of Nigeria focused on explaining the inventory concept and the inventory cost flow assumptions used to determine the cost of goods sold and the cost of the remaining inventory. Regarding the inventory cost flow assumptions, the first one to be considered as first in, first out (FIFO), and the second one was the weighted average cost (WAC) flow assumption.
Most importantly, the central hypothesis of this research consisted of the idea that the inventory cost flow assumptions did not have any relation or any impact on a firm's gross profit, tax amount to be paid, and the cost of the inventory remaining at the end of the accounting period. To illustrate all the theoretical parts, they explained at the beginning of their research, Simeon and John (2018) considered the quantitative data of a company regarding the purchases and the number of sales the company made in 2017. These numerical data were then used to adopt the FIFO and WAC flow assumptions. Hence, they proved that using the FIFO cost flow assumption would cause a lower COGS amount, higher gross profit and tax amount, increased net income, and higher cost of closing inventory. Adopting the WAC flow assumption would cause the COGS amount of a company to be higher than the COGS recorded by using the previously mentioned inventory cost flow assumption. Then, in a second descriptive phase of the research, a survey of 47 informed individuals was conducted using "The Correlation Method", where the authors, based on the information collected, would accept or reject the hypothesis stated. After collecting the data, by applying "The Pearson Product Moment Correlation" as a statistical test, there was observed a strong connection between an inventory cost flow assumption chosen, the gross income, the tax bill that has to be paid and the cost of the inventory at the end of an accounting year. Therefore, the stated hypothesis was proven wrong, leading to the conclusion that all the factors mentioned above are related to the inventory cost flow assumption chosen.
The second research taken into consideration is by Onoja and Abdullahi (2015). Their study was made in Nigeria, focusing mainly on the textile industry to emphasize the inventory cost flow assumptions accepted and adopted by the Nigerian accounting system. Additionally, this study aimed to prove that neither first in, first out (FIFO) nor weighted average cost (WAC) flow assumption was used in Nigerian textile firms. In this paper, it was stated that the two accounting standards (related to the inventory) of the IFRS and US GAAP systems were The International Accounting Standard (IAS) 2 and The Statements on Auditing Standards (SAS) 2, respectively (International Accounting Standards, 2019; Lacoma, 2016). Onoja and Abdullahi (2015) conducted descriptive research since they used surveys to gather information for 8 Nigerian Textile Companies. Specifically, they used "The Random Sampling Method" as they made a random selection to reach the sample size chosen. The sample size consisted of 150 respondents from the Nigerian population. Additionally, a questionnaire was given to the 150 selected individuals. From this study, it can be implied that both the first in, first out (FIFO), and the weighted average cost (WAC) flow assumptions are used in Nigerian textile firms. Furthermore, among these two, FIFO is the most adopted inventory cost flow assumption because of how the goods are taken from the respective firm's inventory.
Last but not least, the third study by Mia and Qamruzzaman (2016) provides a better insight into the best inventory valuation techniques that are necessary to be uniformly and consistently used by manufacturing firms in Bangladesh. Additionally, the hypothesis claimed in this paper was based on the perception that manufacturing firms have no compliance with IAS-2.
The method used to test this hypothesis was based on a significance level of 5%. The population studied consisted of 9 manufacturing industries with 130 organizations, 60 of which were used as a sample size. In the end, the t-value found (42.176) was higher than the percentage set. Furthermore, the choice of inventory valuation methods helps a manufacturing firm to do the necessary financial reporting when it comes to the end of an accounting year. For the Raw materials and Work in Process inventory types, the Bangladesh manufacturing firms use the WAC flow method compared to the other available methods and cost flow assumptions, such as FIFO, which is considered the second most used one. At the same time, these firms agree to use the net realizable value method for valuing the Finished Goods Inventory. Therefore, these firms do not use only one method of inventory cost flow assumption for valuing the inventory while reporting on their respective financial statements. To conclude, the initial hypothesis was rejected since the manufacturing industry accepts and adapts the second IFRS standard by using the inventory cost flow assumptions and the inventory's valuation based on other methods.
However, regarding the sector that I want to focus my research on (the furniture-producing sector), no specific rule states which inventory cost flow assumption a firm should adopt. Each firm decides according to its needs, preferences, goals, and objectives. Nevertheless, with my empirical research, I will provide a conclusion related to the most effective inventory cost flow assumption to be used by the firms. In the concrete study on the manufacturing firms in Bangladesh, which I decided to consider for my paper, between first in, first out (FIFO) and weighted average cost (WAC) flow assumptions, the latter one is preferred to be used in contrast with the common inventory cost flow assumption in the textile industry.
Based on the fact that in Albania, there is no evidence of prior research on the adoption of the inventory cost flow assumptions in any industry, especially in the manufacturing one that I have touched upon, I will try to contribute to this field by presenting the empirical analysis of an actual Albanian manufacturing firm which has been operating on the market for more than 20 years. I aim to make a connection between the theoretical background of the inventory cost flow assumptions and its adoption in the firm. In this way, the theoretical side will not remain in papers, but it will be practically proven instead.

Research Design
Regarding the methodology section of my research, the approach I have used is the qualitative one. The practical side will be based on the research method, a real case study of an actual manufacturing firm. This study takes accurate accounting data from the considered manufacturing company.
To begin with, the manufacturing industry is a broad term used to refer to all the businesses that deal with producing goods. In my research, I will quantitatively study a sofa manufacturing firm specializing in producing or selling readily bought furniture such as sofas, bed upholstery, mattresses, tables, chairs, kitchen furniture, bedroom furniture, and raw materials. Among all these products, I will focus my analysis on the sofas and their production process. As mentioned, this firm has been operating in the market for over 20 years. Additionally, the manufacturing firm studied has adopted the WAC flow assumption to value its inventory based on the cost for one accounting period. It has followed the same inventory cost flow assumption for many years.
Most importantly, my work aims to apply the pure theoretical concepts related to the inventory cost flow assumptions in the context of an existing, successful manufacturing firm. Ultimately, my goal is to discover which of these inventory cost flow assumptions is the most favorable and the most likely to be considered by a firm to value the inventory based on its cost. The superiority of an inventory cost flow assumption over the others will be determined based on its impact on the accounts of the firm's financial statements. The choice of an inventory cost flow assumption partially benefits the firm and the tax authorities. The data collected for one accounting year from the manufacturing firm studied (considered a primary source) is analyzed below. All the primary data will be used to conduct an in-depth empirical analysis.

Data Collection and Analysis
In order to provide this analysis, I will consider the quantitative data of the manufacturing firm for the first quarter of 2023. The quantitative data is related to the 30 produced sofas, all of the same model, "Max Model" (3 Post Sofa), and which differ only in the textile color. Ten of them are with Louvre Forrest color, fifteen are with Louvre Champagne, and five are with Louvre Lavanda. I will calculate the cost of production for all 30 sofas of the mentioned model, considering the raw materials, the direct labor cost, and the manufacturing overhead expenses. To find the cost of the raw materials used, I have to adopt the inventory cost flow assumptions, such as LIFO and WAC.
The direct materials used to produce a sofa can vary. However, regarding this specific model, the "Max Model," the ones used are the respective textiles (Louvre Forrest, Louvre Champagne, Louvre Lavanda), fir boards, the foam, and the hollow fiber filler in specific amounts. Before recording the entries of each of the direct materials purchased, I have to show their respective beginning inventory for 2023 as of 01.01.2023, the same as their ending inventory balance for the previous year, 2022.
Each direct material used in the production process is provided data regarding the quantity and price they are purchased. Then, the cost of a direct material can be found by multiplying the quantity by the purchase price. Since the firm does not buy the direct materials in the same amount, the cost of each direct material will change accordingly.
To begin with the textile as raw material, at the end of the accounting year 2022, the amount remaining in the inventory was 10,000 linear meters (ml) and had a purchase price of 3.9 Euro/ linear meter (€/ml). All three previously mentioned textiles have different colors but the exact purchase price. Moreover, the quantity, the purchase price, and the cost found by the multiplication of the previous two for every direct material are shown in the tables below. Table 1 contains the data for the textiles, Table 2 for the fir boards, and so on.
To find the cost based on the total amount of linear meters bought, the cost of the textile as the direct material is found by multiplying the price in Euro with the quantity purchased at the specified date stated at the beginning of the same row in Table 1. Then, I add up all the separate costs found. Based on the number of cubic meters bought, the cost of the fir board, as a direct material, is found by multiplying the price in Euro with the quantity purchased at the specified date stated at the beginning of the same row in Table 2. Total cost is found in the same way as in Table 1, by finding the sum of all the separate costs. Following the same logic, to find the cost of the total amount for the kilograms of foam purchased, the cost of this direct material is found by multiplying the price in Euro with the respective quantity purchased at the specified date stated at the beginning of the same row in Table 3. After that, I add up all these separate costs. For the kilograms bought of hollow fiber filler, the cost of this direct material can be found by multiplying the price in Euro with the quantity purchased at the specified date stated at the beginning of the same row in Table 4. Adding all the separate costs gives the final total cost. The represented data are regarding the purchases of each direct material used to produce a sofa, such as the "Max Model." In order to find the cost of the production process, first, I have to find the cost of the direct materials used. However, this cost changes due to the inventory cost flow assumption adopted.
To produce a "Max Model" sofa, 10 ml textile, 0.65 m³ fir board, 9.64 kg foam, and 10 kg hollow fiber filler are needed. In total, 30 produced sofas are taken into consideration. So, by multiplying the number of direct materials used for producing a sofa with the total number of sofas, I find out the amount of every direct material used for all 30 sofas.
Furthermore, based on the order followed by each inventory cost flow assumption, I will find the respective costs, considering how the direct materials leave the inventory. For further analysis, I will study the LIFO and WAC as inventory cost flow assumptions. I will start with the LIFO cost flow assumption and the textile as one of the most important materials of the sofa model. Among them, one aspect that should be considered is the variety in color, which will make the sofas different. The available colors are Louvre Forrest, Louvre Champagne, and Louvre Lavanda.
While adopting the LIFO cost flow assumption, the cost of the textile with a specific color will be based on the amount that is lastly purchased, as shown in Table 5 below. We must recall that the textile amount used for producing a sofa is ten linear meters respectively. Also, I mentioned that ten sofas would be produced with the Louvre Forrest, 15 with the Louvre Champagne, and five with Louvre Lavanda. By adopting the LIFO cost flow assumption, since the last entry is for Louvre Lavanda, I will start by following the order of this inventory cost flow assumption. The order, as I have previously mentioned in the theoretical part, is that the newest direct materials purchased will be taken off from the inventory to be first used in production. Respectively, since five sofas were made with Louvre Lavanda from the latest quantity bought in this color, I will take 50 ml. After, because of 15 sofas with Louvre Champagne, I will take 150 ml from the respective second entry made. Same for the ten sofas in the Louvre Forrest, I will take 100 ml from the third, latest, respective quantity purchased. The total cost of the textile (Louvre, used in 3 different colors), acting as a direct material used in the production process, is €1,170. Likewise, I need to adopt the same order, as mentioned above, to the remaining direct materials, respectively, for the fir boards, the foam, and the hollow fiber filler. Focusing on the fir boards, I have to find the number of fir boards used in 30 sofa models. The following equation determines this amount: 0.65 m 3 sofa ×30 sofas=19.5 m³. Then, by adopting the LIFO inventory cost flow assumption, the cost regarding a specific amount of fir boards purchased will be calculated by multiplying the quantity with the respective purchase price, as shown in Table 5 below. Then, the total cost of the used fir boards is found by adding up the costs of each specific purchase. As previously mentioned, I need 19.5m³ fir boards to produce 30 sofas. Nevertheless, to find the cost of 19.5 m³ fir boards, I need to consider that the fir boards leaving first the Raw Materials Inventory will be those lastly entering into it. Taking as reference Table 2, where I showed the fir boards' entries, it can easily be observed that the last purchased fir board's amount is 0.25 m³. Knowing its purchase price at that specific date with a value of 240 €/ m³, I can find out the cost of the fir board, which is 60 €. Then, the second latest fir board was purchased again at 240 €/ m³, and its amount was 0.23 m³. The fir board amount is respective cost will be € 55.2. For other data, the same procedure is followed until the quantity reaches 19.5 m³. The overall cost of the fir boards used in the production process will be €4,559.07.
Additionally, I need to find the foam amount used in 30 sofa models. I can easily find it by applying the formula as follows 9.64kg sofa ×30 sofas=289.2 kg. By adopting the LIFO cost flow assumption, I will take the needed amount of foam from the last amount purchased, 364.50 kg, associated with the purchase price of 2.9 €/kg. Therefore, the cost of the foam used in the production process will be: 289.2 kg×2.9 € kg = € 838.68.
Then, the hollow fiber filler amount used in 30 sofa models can easily be found by the following formula: 10kg sofa ×30 sofas=300 kg. I will consider this amount from the last hollow fiber purchase, which is 3,750 kg, associated with the purchase price of 1 €/ kg. Thus, the cost of the hollow fiber filler used in the production process will be: 300 kg×1 €/kg = € 300.
The overall cost of the direct materials found due to adopting the LIFO cost flow assumption is € 1,170 +€ 4,559.0 + € 838.68 + €300 or € 6,867.75.
After adopting the LIFO cost flow assumption, I will proceed by adopting the WAC flow assumption and finding out the overall cost of the direct materials used in the production process. For adopting the mentioned inventory cost flow assumption, I have to calculate the weighted average cost for each of the direct materials by applying the respective formula, the weighted average cost formula. The formula is the total cost of the direct material available for production divided by the amount available for production. Then the weighted average cost found through it will be multiplied by the respective direct material amount used for finding the cost of each direct material used in the process.
Starting with the textile, its amount available for use in production is 10,889.9 ml. Its cost, based on the amount available to be used in the process, is € 40,439.24. By dividing € 40,439.24 by 10,899.9 ml, I find out the weighted average cost for one linear meter of textile that is € 3.7135. Then, based on the total textile amount used in the production process, which is 300 ml, the overall cost of the textile will be: 3.7135 €/ml ×300ml= € 1,114.05. But the cost found is for 30 sofas in total, without making a difference in the textile color. Taking into consideration the textile color, for making 10 Max Model with Louvre Forrest, the cost of the textile will be 3.7135 €/ml ×100 ml= € 371.35, for 15 Max Model with Louvre Champagne, the cost of the textile will be 3.7135 €/ml ×150 ml= € 557.025 and for 5 Max Model with Louvre Lavanda the cost will be 3.7135 €/ml ×50ml= € 185.675. After adding them up, € 371.35 + € 557.025 + € 185.675, the total cost will be the same as the previous one, € 1,114.05.
Moreover, proceeding with the fir boards, the amount available for use in the production process is 22.73 m³. Its cost, based on the respective amount that is available for the manufacturing process, is € 5,301.97. By dividing € 5,301.97 by 22.73 m³, I found out the weighted average cost for one cubic meter of fir board, which is € 233.2587. There are 19.5 m³ to be used in the process. Moreover, by multiplying the weighted average cost per fir board by the amount required, I find the total cost of the fir board used for producing the 30 sofas, which is € 4,548.5447, respectively.
To find the cost of 289.2 kg of foam used in the production process, I need to find first, as previously stated, the weighted average cost for 1 kg of foam. So, the amount of foam available for use is 4,229.9 kg, and the cost based on this available amount is € 12,023.93. After dividing the € 12,026.252 by 4,229.9 kg, the weighted average cost per 1 kg of foam will be € 2.8426. This cost per 1 kg, multiplied with the amount of foam used in the production process, 289.2 kg, gives the overall cost of the foam, which is € 822.0799. Lastly, to find the cost of the hollow fiber filler amount used to produce the 30 "Max Model" sofas, I divide the cost of the hollow fiber filler available for sale, € 7,950, by the overall amount of hollow fiber filler available, 9,750 kg. This results in the weighted average cost for one kilogram of hollow fiber filler, which is 0.8154 €/kg, respectively. Then, this cost for 1 kilogram of hollow fiber filler amount multiplied by the amount of hollow fiber filler used in the production process, which is 300 kg, gives the cost of the hollow fiber filler used, € 244.62 respectively.
The overall cost of the direct materials found due to adopting the WAC flow assumption is € 1,114.05 + € 4,548.5447 + € 822.0799 + € 244.62 or € 6,729.2946.For a better insight into the manufacturing process involving the debited or credited accounts, I will provide the necessary transactions showing the flow of costs incurred during a manufacturing process. Firstly, when the manufacturing firm purchases the raw materials (direct and indirect), it might buy them on the account because the cost of the raw materials is very high to be paid immediately in cash. This is why the parties (the buyer and the seller) agree on the time when the buyer will have to pay the money for the materials purchased. Until that moment, the buyer remains liable to the supplier.
What I mentioned above can be illustrated with the quantitative data taken as a reference for the study. So, under the LIFO cost flow assumption, the accountant on the buyer firm will debit the Raw Materials' Inventory Account containing direct materials with the respective cost amount of € 65,717.462 (€ 40,439.24 + € 5,301.97+€ 12,026.252 +€ 7,950) and indirect material with the respective cost of € 14.48. The indirect material is considered the lubricant, from which only the amount corresponding to € 8.67 is decided to be used.
In total, the Raw Materials Inventory will be debited for € 65,731.942. The Accounts Payable will be credited with the same amount. The same transaction with the same accounts and amounts will be made if the firm adopts the WAC flow assumption.
Before illustrating in detail, the flow of costs under the adoption of each of the inventory cost flow assumptions, I have to add some information about the In-Process costs known as the WIP costs. Every employee in this manufacturing firm, directly or indirectly affecting the manufacturing process, is paid under the same salary. After making the necessary calculations, the dollar amount each employee is paid for each sofa produced is 8.06 €/ sofa. For 30 sofas, the cost of the direct labor and the indirect labor force will be each, by applying the respective formula 8.06 € sofa ×30 sofas= € 241.8 , specifically, € 242. Furthermore, the cost of Other Manufacturing Overhead expenses (electricity, water) will be a fixed amount of € 484.
In the case that the firm adopts the LIFO cost flow assumption, the cost of the direct materials used is € 6,867.75, together with the cost of the indirect material used, € 8.67, their sum will increase the credit side of the Raw Materials Inventory by € 6,876.4. Thus, the direct materials cost will be credited in Raw Materials Inventory, and the same amount, € 6,867.75 will be debited in the Work in Process Inventory. Likewise, the cost of the indirect material, precisely € 8.67, will be credited to the Raw Materials Inventory, and the same amount of cost will be debited to the Manufacturing Overhead Expense account.
In adopting the WAC flow assumption, the Raw Materials Inventory will be credited by a total amount of € 6,737.9646 (€ 6,729.2946 because of the direct materials' cost and € 8.67 because of the indirect materials cost). The cost of the direct materials will increase the debit side of the Work in Process Inventory. In contrast, the cost of the indirect materials will increase the debit side of the Manufacturing Overhead Expenses account.
Regarding the direct and indirect labor costs, these costs will be credited to the Salaries and Wages Payable account. This account is used because, until the end of the month, the manufacturing firm remains liable to its employees. It is important to re-emphasize that an employee who acts directly or indirectly in the production process will be paid 8.06 €/sofa, and in total, € 242. The direct labor costs will then increase the debit side of the Work in Process account by € 242, and the indirect labor costs will increase the debit side of the Manufacturing Overhead Expense account by precisely the same amount. Regarding the Salaries and Wages Payable account, in total, it will be credited at the cost of € 484. The same flow will occur if the firm adopts the WAC flow assumption for the type of costs mentioned above.
For the costs included in the Other Overhead Expenses group with the amounts of € 484, the firm should record them on the Manufacturing Overhead Expenses account on the debit side and the credit side on the Utilities Payable account. Specifically, due to this cost, the Manufacturing Overhead Expenses account will increase its debit side by € 484, and exactly with the same amount, the Utilities Payable account will increase its credit side. The same transaction would occur if the firm adopted the WAC flow assumption. The next step is to add up all the Manufacturing Overhead Expenses as actual expenses that the firm has planned for undergoing the production process, even though their effect is to contribute indirectly to it. After I add all the costs, specifically the Indirect Materials, Indirect Labor, and Other Manufacturing Overhead expenses with their specific amounts, I will find the total Manufacturing Overhead Expenses. By illustrating the following formula, its amount will be € 8.67 +€ 242+€ 484=€ 734.67. The exact amount of cost will be even if the firm adopts the LIFO or WAC flow assumption.
Since the firm will execute an effective and efficient production process, the amount of Manufacturing Overhead Expenses planned will be the same with the amount as the firm will make because of the indirect materials, indirect labor force, and other aspects included in the production process. So, the following transaction will consist of the Manufacturing Overhead Expenses credited by €734.67 and the Work in Process Inventory. The exact amount will be debited under the name The Overhead Applied.
I will take the case separately when the firm adopts the LIFO cost flow assumption and record the transaction mentioned above and when it adopts the WAC flow assumption to show the differences in the cost amount due to the firm's choice. Respectively, suppose the firm chooses to adopt the LIFO cost flow assumption. In that case, the Work in Process costs will consist of the Direct Materials cost, which amounts to € 6, 867.75, the direct labor cost of € 242, and the Overhead Applied expenses, which are € 734.67. After adding them, the total work-in-process cost will be € 7,844.42.
The following transaction recorded will consist of the cost previously found, € 7,844.42, which will increase the debit side of the Finished Goods Inventory account, as well as the credit side of the Work in Process Inventory, both under the name "Cost of Goods Manufactured." In the scenario where all the sofas produced will be sold (all 30 sofas), the cost of the sofas manufactured, € 7,844.42 after the sale, will be converted to the cost of the goods sold under the same amount. Furthermore, the last transaction will be COGS, which will increase its debit side by € 7,844.42, and Finished Goods Inventory, which will increase its credit side by the same amount. Now, the focus is if the firm adopts the WAC flow assumption. By adding all the specific accounts, as I previously mentioned, the total Work-In-Process cost will be € 7,705.9646. The other transactions will affect the same accounts as if the firm adopts the LIFO cost flow assumption but differs from it; under the WAC flow assumption, only the amount of cost changes.

DISCUSSION OF FINDINGS
Throughout the empirical analysis made, what I can conclude is that the COGS found through the adoption of the LIFO cost flow assumption, € 7,844.42 is greater than the COGS found by the other inventory cost flow assumption, WAC, that is € 7,706.14. The conclusion derived is according to what was explained in the theoretical background part due to the impact that the inventory cost flow assumptions, taken as reference, had on the COGS and the ending inventory. Apart from the COGS, the cost of the ending inventory will be also affected by adopting any of the referred inventory cost flow assumptions. To find the cost of the ending inventory for each direct material used, I had to add up all the costs of the remaining amounts (a direct material's available amount -its amount used in the process). Specifically, when the firm adopted the LIFO cost flow assumption, the cost of the textile ending inventory would be € 39,269.24, the cost of the fir boards € 742.9, the cost of the foam € 11,185.25, and the cost of the hollow fiber filler, € 7,650. And by adding up all these remaining costs, the overall costs of direct materials' ending inventory would be € 58,847.39. The cost found, together with the cost of the remained indirect material, that is € 5.81 (€ 14.48 -€ 8.67), would give the total Raw Materials ending inventory's value that is, € 58,853.2.
Then, if the firm adopted the WAC flow assumption, calculating the total cost of the Raw Materials' ending inventory would change from the previous one because the weighted average cost per unit of each direct material would be multiplied by the respective remaining amounts. Respectively, the cost of the remaining textile would be € 39,325.59365, the cost of the fir boards, € 753.425601, the cost of the foam € 11,204.19824 and the cost of hollow fiber filler, € 7,705.53. So, after I added them up, the total cost of the Raw Materials' ending inventory would be € 58,988.7475. The prices at which is calculated the cost of the Raw Materials' Ending Inventory is nearly close to the cost based on the current prices that the raw materials are purchased in the market. What is clearly shown, following what the theory states, is that the cost of the Raw Materials' ending inventory, found by the adoption of LIFO cost flow assumption, € 58,853.2, is lower than that found by the adoption of WAC, € 58,988.7475.

Implication to Research and Practice
The subject of inventory cost flow assumptions, in particular the drawbacks of the Last-In, First-Out (LIFO) technique, can be useful for accounting research and practice in a number of ways. The following are some possible contributions: Alternative cost flow assumptions are being studied: LIFO is one of the popular cost flow assumptions, however it has drawbacks, especially during periods of inflation or growing expenses. Alternative cost flow assumptions, such as First-In, First-Out (FIFO), weighted average cost, or specific identification, might be investigated and proposed by researchers. Researchers can contribute to the creation of more precise and dependable inventory valuation techniques by researching the implications and benefits/disadvantages of various cost flow methods.
Analyzing the effect on financial statements: The balance sheet and income statement of a corporation are affected by the assumption of inventory cost flow. Researchers can investigate the effects of various cost flow assumptions, including LIFO, on tax liabilities, profitability ratios, financial reporting, and other pertinent financial indicators. This study can help practitioners make defensible choices on cost flow hypotheses by shedding light on the implications of utilizing LIFO.
Analyzing the tax implications: In some countries, LIFO has significant tax advantages, especially during times of rising expenses. The use of LIFO and its effects on a company's tax liability can be studied from a tax perspective. This study can help us better understand how tax planning, cost flow assumptions, and organizational financial performance are related.
Analyzing the implications for each industry: Different sectors may have distinctive traits and methods of inventory management. To better understand how the choice of cost flow assumptions, including the constraints of LIFO, affects inventory value, profitability, and financial reporting, research might concentrate on certain industries. This sectorspecific research can help professionals choose the best cost flow assumptions for their particular industry environment.
Guidance and best practices development: Research findings on LIFO constraints and inventory cost flow assumptions can be used to produce recommendations and best practices for practitioners. To improve the caliber of financial reporting and decisionmaking, accounting authorities, standard-setting bodies, and professional associations can incorporate study findings into their announcements and guidelines.
In the end, research on inventory cost flow assumptions and the limitations of LIFO can aid in the development of more precise inventory valuation methods, shed light on the implications for accounting and taxation, and offer advice to practitioners in making wise choices. These contributions can strengthen the accuracy and applicability of accounting procedures and boost organizational decision-making procedures.

CONCLUSION
To conclude, this research consists of answering three main questions: 1) Which are the accepted and the most adopted inventory cost flow assumptions under the Albanian accounting system? 2) Why is the LIFO cost flow assumption prohibited from valuing the inventory at its cost? 3) Which is the most favorably used inventory cost flow assumption? Throughout the entire research, I concluded three inventory cost flow methods are accepted under the Albanian accounting system: The Specific Identification, First in, First Out, and Weighted Average Cost Flow Methods. Additionally, the most adopted inventory cost flow assumptions in the same system are the latter two. Furthermore, it was concluded that the LIFO cost flow assumption is prohibited because by providing a higher cost of the goods sold and higher cash flow, it lowers the amount of gross profit, the tax amount that a firm has to pay, and thus its net income generated during an accounting period. Moreover, WAC is the most favorable inventory cost flow assumption because it provides lower COGS, higher gross profit, net income, and an increased cost of the ending inventory, as it is also closer to the one found with the current market prices. However, what is most important of all, it is simpler to calculate the firm's COGS during a specific accounting period. It is also beneficial to the tax authorities since the amount of tax imposed on a firm is greater than the one it would have to pay if it adopts the LIFO cost flow assumption.

Recommendations for future work / New knowledge contribution
There is still some need for improvement and more future work to be done regarding this topic. That includes better practical work and more research on adopting inventory cost flow assumptions in various industry types and firms. With my research, I have contributed to the Albanian accounting system by providing them with a practical study of the adoption of inventory cost flow assumptions in a real manufacturing firm. Most importantly, this research is a pioneer of the practical work done on firms in Albania regarding the aspect of inventory cost flow assumptions. This can lead to future research and improvement of their adoption in different firms of other sectors as well, not only the manufacturing one that I have considered in this case.