Question

COVID 19 NOTE. ADVANTAGES AND DISADVANTAGES OF LIFO AND FIFO SHOULD NOT BE MEMORIZED. PLEASE REFER TO THE LINK TO THE FILE TO SEE THE ADVANTAGES AND DISADVANTAGES OF FIFO AND LIFO

Answer 1

LIFO and FIFO are two methods used in inventory management. LIFO minimizes taxes in inflationary environments, while FIFO reflects the physical flow of goods. LIFO may not accurately reflect inventory value and has higher carrying costs, while FIFO may not reflect actual cost of goods sold.

Step-by-step explanation:

In the context of inventory management, LIFO stands for Last-In, First-Out, while FIFO stands for First-In, First-Out. These are two commonly used methods for valuing inventory and determining the cost of goods sold.

The primary advantage of LIFO is that it can minimize taxes in inflationary environments, while the primary advantage of FIFO is that it matches the physical flow of goods and often reflects the actual cost of inventory.

A disadvantage of LIFO is that it may not accurately reflect the current value of inventory, especially during periods of inflation. Additionally, LIFO can result in higher carrying costs and may not be suitable for certain industries such as perishable goods.

A disadvantage of FIFO is that it may not accurately reflect the actual cost of goods sold, especially when there are significant changes in inventory costs over time. FIFO also does not provide tax advantages in inflationary environments.