What are the differences between FIFO and LIFO inventory methods?

What are the differences between FIFO and LIFO inventory methods?

FIFO (First In, First Out) means the oldest inventory items are sold first, while LIFO (Last In, First Out) means the newest items are sold first.

What are the advantages of using FIFO?

FIFO can help in reducing spoilage for perishable goods and provides a more accurate reflection of current inventory costs.

Are there any disadvantages to using LIFO?

Yes, LIFO can lead to outdated inventory on the balance sheet and may not reflect the actual flow of goods.

Which method is better for tax purposes?

LIFO can be beneficial for tax purposes during inflation, as it allows businesses to report lower profits and thus pay less tax.

Can you give me examples of industries that prefer FIFO?

Industries like food and pharmaceuticals often prefer FIFO due to the perishable nature of their products.