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Suggest pagesFIFO and LIFO accounting
| Accountancy | |
|---|---|
| Key concepts | |
| Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow forecasting · Chart of accounts · Journal · Special journals · Constant item purchasing power accounting · Cost of goods sold · Credit terms · Debits and credits · Double-entry system · Mark-to-market accounting · FIFO and LIFO · GAAP / IFRS · General ledger · Goodwill · Historical cost · Matching principle · Revenue recognition · Trial balance | |
| Fields of accounting | |
| Cost · Financial · Forensic · Fund · Management · Tax (U.S.) | |
| Financial statements | |
| Balance sheet · Cash flow statement · Statement of retained earnings · Income statement · Notes · Management discussion and analysis · XBRL | |
| Auditing | |
| Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act | |
| Accounting qualifications | |
| CA · CPA · CCA · CGA · CMA · CAT · CFA · CIIA · IIA · CTP | |
FIFO and LIFO Methods are accounting techniques used in managing inventory and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks.
FIFO stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold; this is just an inventory technique.
LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first. Since the 1970s, U.S. companies have tended to use LIFO, which reduces their income taxes in times of inflation. LIFO is only used in Japan and the U.S.[1]
The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve. This reserve is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.[2]
[edit] See also
- Cost of goods sold
- Income statement
- Inventory
- Moving average cost
- Specific identification
- Weighted average cost
[edit] References
- ^ Gibson SC. (2002). LIFO vs. FIFO: a return to the basics. The RMA Journal. Free full text.
- ^ "LIFO Reserve Definition". AccountingTools. http://www.accountingtools.com/lifo-reserve-definition. Retrieved 2011-11-09.
[edit] External links
- Taxpolicycenter.org, "Tax Topics: Repeal LIFO"
