crussmba
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Depends on your objective. Do you want to make your profits higher or lower, do you want to show more assets on your balance sheet, or less assets, are prices rising, or falling?
What does LIFO or FIFO really mean? It means Last in, first out/First In, First out.
BUT FIRST OUT TO WHAT?????
This question is really the key to the whole concept. First out to COST OF GOODS SOLD!!!!
Here is a very simple example
In may, you buy 1 unit at $10 dollars (1st cost in)
in June, you buy 1 unit at $12 dollars (last cost in)
In July, you sell 1 unit for $15 and have 1 left in invent
ory:
Ok Now you will always have revenue at $15 in July
but using FIFO, your COGS is $10 (your first cost in is first cost out to COGS)
So your gross profit is $5,
and you show inventory at $12 on the balance sheet
USING LIFO,
You revenue in July is still $15
but COGS is now $12 (Last cost in is first to cogs)
so gross profit is now $3,
and you have $10 showing as inventory.
As you can see, you can manipulate the numbers. If you were going to be filing a tax return for example, you might want to use the Lifo method in the above scenario..to show a lower revenue. However, In Canada anyway, the LIFO method isn't allowed for tax purposes. The government is onto this :)
 Posted 538 days ago
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