What are the advantages of using LIFO in inventory management?

What are the advantages of using LIFO in inventory management?

LIFO, or Last In, First Out, has several advantages, including tax benefits and better matching of current costs with revenues.

Can you explain how LIFO affects taxes?

Certainly! LIFO can reduce taxable income during times of rising prices, as it allows businesses to deduct the cost of the most recently purchased inventory.

Are there any downsides to using LIFO?

Yes, some downsides include potential inventory valuation issues and it may not reflect the actual flow of goods in some industries.

How does LIFO compare to FIFO?

LIFO contrasts with FIFO (First In, First Out), where the oldest inventory is sold first. LIFO can lead to lower profits on paper during inflation.

Is LIFO allowed under international accounting standards?

No, LIFO is not permitted under IFRS, which requires the use of FIFO or weighted average cost methods.