1 answer

Financial complications change from lifo to fifo

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financial complications change from lifo to fifo


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LIFO - LIFO means Last In First Out. It is one of the accounting method which is used for managing inventory. In this method the units arrived at the last are sold Or used first.

FIFO - FIFO means First In First Out. It is also one of the accounting techniques used for managing inventory. In this method the units arrived first are issued Or used first.

Financial statements - profit and loss statement, Trial balance and Balance sheet together constitutes financial statements where profit and loss statements gives the income /profit/loss of the company whereas trial balance shows the arithmetical accuracy of financial statements and also balance sheet is a statement which shows the position of the company.

Financial complications change from LIFO to FIFO-

Any small change will lead to a huge impact on the financial statements.

The inventory purchase price is the prominent factor on financial statements while changing from LIFO to FIFO

When the costs are increasing, LIFO leads to higher expense of cost of goods but lower end of the period Inventory

When the costs are decreasing, LIFO leads to lower expense of cost of goods but higher end of the period inventory

In FIFO, the inventory amount in Balance sheet will be almost equal to the current market price.

Heavier tax burder with LIFO during inflation period.

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