lifo
FIFO
FIFO (first in first out) is a method of account for inventory. With FIFO, if inventory costs are increasing your cost of goods sold will be lower than under the LIFO (last in first out) method. If inventory costs are increasing, FIFO will result in higher net income (lower COGS) than LIFO. If inventory costs are decreasing, FIFO will result in lower net income (higher COGS) than LIFO.
periodic inventory system
It is cost effective and simple for companies to implement since it reduces the number of physical inventory counts. It is also accepted as a method of determining cost of goods sold for income tax purposes by the IRS.
The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
LIFO method
FIFO
FIFO (first in first out) is a method of account for inventory. With FIFO, if inventory costs are increasing your cost of goods sold will be lower than under the LIFO (last in first out) method. If inventory costs are increasing, FIFO will result in higher net income (lower COGS) than LIFO. If inventory costs are decreasing, FIFO will result in lower net income (higher COGS) than LIFO.
periodic inventory system
It is cost effective and simple for companies to implement since it reduces the number of physical inventory counts. It is also accepted as a method of determining cost of goods sold for income tax purposes by the IRS.
The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
In a large cooperate business where the income tax revenue can be allocated by giving to charities and using other income tax shelters
LIFO
A method of inventory accounting in which the oldest remaining items are assumed to have been the first sold. In a period of rising prices, this method yields a higher ending inventory, a lower cost of goods sold, a higher gross profit (assuming constant price), and a higher taxable income. Also called FIFO.Method in calculation in which the weighted averagezzor the period is the cost of the goods available for sale divided by the number of units available for sale. When the perpetual inventory system is used, the weighted average method is called the moving average method.
In a period of rising prices, your most recently purchased inventory would have the highest value. Therefore, using LIFO would result in a higher Cost of Goods Sold, a lower Net Income and a lower income tax liability.
Assuming we are talking about a business, one way is to reduce operating expenses in conjunction with changing the accounting method for cost of goods sold (COGS). Many companies use the FIFO method for calculating COGS. The FIFO method uses the highest costs for the goods and higher COGS leads to lower net income. Switching to the LIFO inventory method reduces COGS and increases net income.
Majority of the companies are following weighted average method to value inventories. In India, the Income Tax authorities only allow FIFO & Weighted Average Method.