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Accounting

ACC 205 Week 3 DQ LIFO vs. FIFO

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LIFO vs. FIFO
ACC 205 Week 3 DQ
LIFO vs. FIFO

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LIFO vs. FIFO
Fifo and Lifo
FIFO and LIFO
Accounting Implications of Valuing Inventory under FIFO and LIFO
LIFO and FIFO Inventory Accounting Methods
The two most common methods of inventory accounting are Last-in-first-
out (LIFO), and first-in –first out (FIFO), choosing the correct method of
inventory accounting could be detrimental to the income statement and
the statement of cash flow, and also it would affect the balance sheet of
the company. For a company, it is imperative that they track their
inventories and cost of goods sold. Both of these methods of accounting
are a way they could do this. LIFO and FIFO are methods used for
accounting for the inventory. I will discuss these two different methods.
FIFO
FIFO is a method that companies use whose inventories are like food or
an item that could turn bad if not sold quickly. A company using FIFO
normally looks better to investors then they are. It is sort of a false
advertisement of higher profit then it should be reflecting. The good part
of a FIFO method is that it reflects new purchases and with that would
show accurate replacement costs.
LIFO
LIFO is a method that companies would use if their inventories were not
perishable or had a wear out date. If and when cost of the items rise, the
higher, priced items are sold first. .LIFO normally lowers a company’s tax
liability and, as well as their net income. The bad part of this method is

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LIFO vs. FIFO
that the companies do not approximate the replacement cost of their
times sold to well. So this would make it a challenge on the budget in
most cases.
Now that I have discussed these two methods of inventory, if I owned a
small business I would try to use the FIFO. This method to me seams
more accurate.

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