In decreasing prices, FIFO inventory is preferred to LIFO inventory.
What is FIFO?
- First In, First Out, sometimes known as FIFO, is a strategy of managing assets and valuing them that prioritizes the sale, use, or disposal of assets that were produced or acquired first.
- For taxation purposes, FIFO presumes that the cost of items sold on the income statement includes the assets with the oldest expenses (COGS). The assets in the inventory that are still available are compared to those that were just bought or made.
- According to the accounting principle known as first in, first out (FIFO), assets that are bought or acquired first are also the first to be sold.
- According to FIFO, the inventory still on hand is made up of products that were bought last.
- LIFO is an accounting technique that differs from FIFO in that assets that were acquired or purchased most recently are sold first.
- In an inflationary market, the FIFO technique frequently assigns lower, older expenses to the cost of items sold, resulting in a higher net income than if LIFO were utilized.
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