What are the advantages of FIFO and LIFO inventory methods?

What are the advantages of FIFO and LIFO inventory methods?

FIFO (First In, First Out) ensures older inventory is sold first, reducing spoilage. LIFO (Last In, First Out) can lower tax liability during inflation.

Can you explain how FIFO helps with inventory management?

Sure! FIFO helps maintain product freshness, especially for perishable goods, and provides a clearer picture of inventory turnover.

What about LIFO? How does it benefit businesses?

LIFO can be beneficial during inflation as it allows businesses to match current costs with revenues, potentially reducing taxable income.

Are there any downsides to using these methods?

Yes, FIFO can lead to higher taxes in inflationary periods, while LIFO may not reflect actual inventory flow, complicating financial analysis.

Which method is more commonly used in practice?

FIFO is generally more common, especially in industries with perishable goods, while LIFO is often used in industries with stable prices.