FIFO and LIFO accounting

FIFO and LIFO accounting are methods used in managing inventory and financial matters involving the amount of money a company has to have tied up within inventory of produced goods, raw materials, parts, components, or feedstocks.

They are used to manage assumptions of costs related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.

FIFO will have a higher ending inventory value and lower cost of goods sold (COGS) compared to LIFO in a period of rising prices.

"LIFO" stands for last-in, first-out, meaning that the most recently purchased items are recorded as sold first.

[citation needed] LIFO is used only in the United States, which is governed by the generally accepted accounting principles (GAAP).

This reserve, a form of contra account, is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.

[2] In most sets of accounting standards, such as the International Financial Reporting Standards, FIFO (or LIFO) valuation principles are "in-fine" subordinated to the higher principle of lower of cost or market valuation.