FIFO vs LIFO: Which is Better?
An example of an AI chatbot conversation about FIFO and LIFO inventory methods.
What are the main differences between FIFO and LIFO?
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.
Which method is better for tax purposes?
LIFO can be beneficial for tax purposes during inflation, as it allows businesses to report lower profits by matching recent higher costs against revenues.
Are there any industries that prefer one method over the other?
Yes, perishable goods industries often prefer FIFO to ensure older stock is sold first, while industries with non-perishable goods may use LIFO.
Can you give me an example of how each method works?
Sure! In FIFO, if you buy 100 units at $10 and then 100 at $12, when you sell 100, you account for the $10 units first. In LIFO, you would account for the $12 units first.
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