Retail earnings: How accounting could change profitability amid tariffs

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As more tariffs take effect on goods imported into the U.S., a specific accounting method could have major implications for how American retailers calculate the impact.

A tariff adds to the cost of an imported item when it's received and paid for when it crosses a border. While there's debate over who pays that tariff — the manufacturer, the retailer, the consumer or some combination — the hit will likely show up in retailers' bottom lines.

But a specific accounting practice, called retail inventory method accounting, or RIM, can make profitability appear stronger than it is in the short term.

"Retail inventory method accounting (RIM) is less responsive to initial product cost changes compared to cost acco