What are the differences between FIFO and LIFO in inventory management?

Can you explain the difference between FIFO and LIFO in inventory management?

Sure! 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.

Can you give me an example of each method?

Of course! For FIFO, imagine a grocery store selling milk. The milk that was stocked first is sold first. For LIFO, think of a warehouse where the newest boxes are shipped out first, even if older boxes are still there.

What are the advantages of using FIFO over LIFO?

FIFO can help reduce spoilage and ensure older products are sold first, which is crucial for perishable goods. It also often results in lower tax liabilities during inflation.

Are there any industries where LIFO is preferred?

Yes, LIFO is often preferred in industries where inventory costs are rising, like manufacturing, as it can provide tax benefits by matching current costs with revenues.