The fifo inventory costing method produce higher inventory account balances than the lifo method during inflationary times.
What is Inflationary time?
The rate at which prices increase over a specific time period is known as inflation. Inflation is often measured in broad terms, such as the general rise in prices or the rise in a nation's cost of living.
What does FIFO and LIFO mean?
- The acronym FIFO means "First-In, First-Out." It is a technique used in the computation of cost of goods sold to support cost flow assumptions. The FIFO approach is predicated on the idea that the oldest items in an organization's inventory have already been sold. The computation is based on the prices paid for those earliest products.
- The last in, first out (LIFO) approach of inventory accounting is utilized. According to LIFO, expenses are deducted starting with the expenditures of the most recent goods that were bought (or produced). Only in the United States is LIFO used, and generally accepted accounting principles control it (GAAP).
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