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

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

LIFO (Last In, First Out) means the most recently purchased items are sold first, while FIFO (First In, First Out) means the oldest items are sold first.

What are the advantages of using LIFO?

LIFO can lead to tax benefits during inflation, as it matches recent higher costs against revenues, reducing taxable income.

Are there any disadvantages to using FIFO?

Yes, FIFO can result in higher taxes during inflation since older, cheaper costs are matched against current revenues.

Which method is better for a business?

It depends on the business's financial strategy and market conditions. LIFO may be better in inflationary times, while FIFO is often preferred for perishable goods.