What are FIFO and LIFO, and can you give me examples?

What are FIFO and LIFO, and can you give me examples?

FIFO stands for 'First In, First Out,' meaning the oldest inventory items are sold first. LIFO, or 'Last In, First Out,' means the most recently acquired items are sold first. Would you like examples of each?

Yes, please provide examples for both.

Sure! For FIFO, imagine a grocery store selling milk. The milk that was stocked first is sold first, ensuring freshness. For LIFO, consider a warehouse storing boxes. The last boxes added to the stack are the first to be shipped out.

How does FIFO and LIFO affect financial statements?

FIFO typically results in lower cost of goods sold during inflation, leading to higher profits. LIFO can reduce tax liability in the same scenario, as it shows higher costs.

Are there any industries where one method is preferred over the other?

Yes, perishable goods industries often prefer FIFO to maintain freshness, while industries with non-perishable goods may use LIFO for tax advantages.