As the name suggest, FIFO will account inventory that came in first will be sold first. This method is effective for companies selling products with expiration dates. Obviously, market selling milk should record their sales with first in, first out method because the older milk will be sold first. International Accounting Standards No. 2 (IASCF) does not permit the use of LIFO for foreign affairs. Therefore, companies must use FIFO to report any inventory outside of the US effective as of January 1, 2009.
On the hand, we have LIFO which is last in, first out. There has been a gradual increase of LIFO method by companies from 1973-2008. This method assumes that shirts bought in May 2012 will be sold before the shirts made in January 2012. Generally, products bought at a later date will be more expensive than the products bought at an earlier date. Many reasons may be the cause of price difference such as inflation. In this case, LIFO produces a higher cost goods sold and a lower net income. Therefore, when the tax season rolls around, you will get a cut since you made less profit because you paid more for your goods.
You can use more than one method to keep track of your inventory. You can use the FIFO for international businesses and LIFO for your domestic business.
Danville Bottlers is a wholesale beverage company that offers profit-sharing plans based on annual pretax earnings. The inventory account is currently overstated by $665,000 if you minus the correct ending inventory of $2,600,000 from the recorded inventory of $3,635,000. The current inventory account is recorded with the incorrect higher amount meaning that the cost of goods