What are the benefits of LIFO?

What are the benefits of using the LIFO accounting method?

The LIFO (Last In, First Out) method can help businesses reduce tax liabilities during inflation by matching recent higher costs against revenues.

Can you explain how LIFO affects cash flow?

Certainly! LIFO can improve cash flow by deferring tax payments, as it often results in lower taxable income during inflation.

Are there any drawbacks to using LIFO?

Yes, some drawbacks include potential inventory valuation issues and it may not be accepted under IFRS, limiting its use internationally.

How does LIFO compare to FIFO?

LIFO contrasts with FIFO (First In, First Out) in that it assumes the most recently purchased items are sold first, which can lead to different profit margins.

Is LIFO suitable for all types of businesses?

LIFO is generally more suitable for businesses with fluctuating inventory costs, like those in manufacturing or retail, but may not fit all industries.