LIFO

Examples of LIFO in the following topics:

• Inventory Techniques

  • FIFO, LIFO, and average cost methods are accounting techniques used in managing inventory.
  • LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first.
  • Since the 1970s, some U.S. companies shifted towards the use of LIFO, which reduces their income taxes in times of inflation, but with International Financial Reporting Standards banning the use of LIFO, more companies have gone back to FIFO.
  • LIFO is only used in Japan and the United States,
  • The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve.

• Inventory Costs

  • Inventory costs depends on methods used, which include Specific Identification, Weighted Average Cost, Moving-Average Cost, FIFO, and LIFO.
  • LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first.
  • LIFO is only used in Japan and the U.S.
  • 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.

• Limitations of the Income Statement

  • Income statements are a key component to valuation but have several limitations: items that might be relevant but cannot be reliably measured are not reported (such as brand loyalty); some figures depend on accounting methods used (for example, use of FIFO or LIFO accounting); and some numbers depend on judgments and estimates.
  • Another common difference across income statements is the method used to calculate inventory, either FIFO or LIFO.

• Defining the Income Statement

  • Some numbers vary based on the accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level).