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LIFO and FIFO are acronyms that usually stand for, respectively, "last in, first out," and "first in, first out." Both terms are used in a wide variety of situations to determine the order in which something will be handled, from how luggage is put into and removed from a storage bay to determining which employees are laid off. One or both terms have special significance in the areas of inventory control, accounting, computer science, and employment.
FIFO (First In First Out) and LIFO (Last In First Out)
I agree with the other-detailed-comments. In General, both methods are used to manage and control the goods release, based on a several factors may face the company and reflect on the product price also the benefit at the end, such as (goods price increase, taxes, expiry or effective issues related to the product).
Best Regards,
FIFO : Mostly using for shelf life products ( this mean .... products which have limited life , eg : glue, tapes etc....)
lifo in last in first out, fifo is first in first out.
If we find the cost of our items increasing, the use of LIFO will result in less taxable income and less income tax payments than FIFO. Over a long period of time, or when costs increase dramatically, the lower income tax payments will be significant.
in my company it was the accounting or finance call to use either
FIFO is used mainly due to expiry of some items that has expiry date
but in computing the value of your existing items and the cost of consumed items average price is used
FIFO:first input first out
Using when you have materials that have limited alive period
LIFO: lat input first out
using when you have huge quantities of one material type storing in one location, in other word, fist issue material is the last stored
More often the term FIFO is used by the organisation which means FIRST IN FIRST OUT. Under this practice we issue that material first which we received first (or earlier) at store. By using FIFO we can manage our issuance procedure in a effective manner which will prevent any possibility of material deterioration, obsolescence as well as expiration.
LIFO stands for LAST IN FIRST OUT, we can follow this incase the material which we received later has short expiry. After getting adequate approvals LIFO can be followed for some special case.
In my industry FIFO is used as our assets can corrode and the quality can deteriates if the asset is left on inventory for too long. LIFO could cause issues with poor controls and turnaround of assets and can be detrimental to quality and cost (in my current business)
LIFO Versus FIFO
The LIFO, or last-in, first-out, procedure assumes that goods purchased last are the first goods sold. In turn, FIFO -- or first-in, first-out -- assumes that goods purchased first are the initial goods sold. When prices rise and recent purchases are priced higher than goods purchased at an earlier point in time, LIFO results in a higher cost of goods sold and a lower income than does FIFO. However, LIFO more closely matches current revenues with current expenses than does FIFO, and as a result, more accurately reflects the actual cost of goods sold. In turn, FIFO more accurately reflects inventory value in that units that remain in inventory at the end of an accounting period reflect current costs.
LIFO
Assume that a company makes three purchases:10 units at $2 per unit for $20,20 units at $3 for $60 and30 units at $4 for $120. As a result of the purchases, inventory consists of60 units with a total value of $200. Now assume thirty units are sold leaving30 units in inventory. Under LIFO, the goods that were placed in inventory last are assumed to be the first sold. Therefore, the cost of goods sold is equal to30 units at $4 each or $120 and the ending inventory is equal to the sum of ten units at $2 per unit for $20 plus20 units at $3 per unit for $60 or a total of $80.
FIFO
Let's now rely on the same assumptions in terms of the number of units purchased, the prices of those units, the units sold and the units in ending inventory that were used for the LIFO calculations. Under FIFO, the goods that were placed in inventory first are assumed to be the initial units sold. Therefore, the cost of goods sold is equal to10 units at $2 each or $20 plus20 units at $3 each or $60 for a total of $80. As a result, the ending inventory is equal to30 units at $4 per unit or $120.
Application
Frequently, a company cannot track specific units in inventory. As a result, LIFO and FIFO accounting procedures are used to assume the particular units that are sold during an accounting period and which units remain in inventory and to cost those units accordingly.
LIFO and FIFO are cost flow assumptions used to account for inventory and the cost of goods sold.
Both FIFO and LIFO and are warehouse material queing systems. FIFO stands for First In First Out and for Last In First Out. The detail has been adequately explained in earlier answers. However, I would add that the useage of either of these techniques in real life shall depend on the type of material and their attributes.
I agree with Amer , we all learned LIFO and FIFO in bachelor of commerce but I guess a warehouse manager can effectively use it in work.
