What is the difference between LIFO and FIFO in inventory management?

What is the difference between LIFO and FIFO in inventory management?

LIFO stands for Last In, First Out, while FIFO means First In, First Out. In LIFO, the most recently added items are sold first, whereas in FIFO, the oldest items are sold first.

Can you give me an example of each method?

Sure! For FIFO, if you have items A, B, and C added in that order, A would be sold first. For LIFO, C would be sold first.

What are the advantages of using LIFO?

LIFO can be beneficial in times of rising prices as it can reduce tax liability by matching recent higher costs against current revenues.

Are there any disadvantages to using FIFO?

Yes, FIFO can lead to higher taxes during inflation since older, cheaper costs are matched against current revenues, increasing taxable income.