Inventory: FIFO, LIFO
first in, first out, or fifo, is a method businesses use to value inventory in which assets produced or acquired first are sold, used or disposed of first, while the most recently produced or acquired assets are sold, used or disposed of last. last in, first out, or lifo, assumes that assets produced or acquired last are sold, used or disposed of first, while those produced or acquired earlier are sold, used or disposed of last. ? store purchases 200 shirts for $10 and then 300 shirts for $20. at the end of the accounting period, ? sold 100 shirts. inventory cost. 200 shirts at $10 each equals $2,000, 300 shirts at $20 each equals $6,000. total number of shirts equal 500. total inventory value equals $8,000. using the fifo valuation method, cost of goods sold, cogs, is 100 shirts sold times $10 equals $1,000. remaining inventory of 400 shirts is valued at 100 shirts times $10 plus 300 shirts times $20 equals $7,000. using the lifo method of valuation, cogs is 100 shirts sold times $20 equals $2,000. remaining inventory. 200 shirts times $10 plus 200 shirts times $20 equals $6,000. whether a company chooses fifo or lifo has important implications for the bottom line and for tax liability. in an inflationary period of rising prices, the higher priced items are sold first under lifo leading to increased cogs and reduced profits and hence a lower tax liability. fifo results in lower cogs when prices rise since a firm sells off its oldest goods first which it acquires at a lower price. lower cogs implies higher profits which investors love to see. unfortunately, higher profits signify a higher tax liability. fifo, however, reflects replacement cost more accurately because recent goods are sold off first.
- first in, first out（fifo）・・・先入先出法
- last in, first out（lifo）・・・後入先出法
- replacement cost・・・再調達原価