accounting fifo vs lifo

accounting fifo vs lifo are two different inventory management methods used in accounting to calculate the cost of goods sold (COGS) and the value of inventory. FIFO (First In, First Out) assumes that the first items purchased or produced are the first ones sold. This method is widely used in industries dealing with perishable goods, such as food and pharmaceuticals, where older inventory needs to be sold before newer stock to avoid spoilage. On the other hand, LIFO (Last In, First Out) assumes that the most recently purchased items are the first ones sold. This method can be advantageous during periods of inflation, as it results in higher COGS and lower taxable income. The choice between FIFO and LIFO can have significant implications for financial reporting and tax liabilities. While FIFO reflects a more realistic inventory flow in many industries, LIFO is often used in environments where inventory prices are rising, as it reduces taxable profits in the short term.