LIFO and FIFO

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Summary: As a group we have decided to do our project on the fundamental differences between last-in, first out (LIFO) vs. first-in, first out (FIFO) under the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). LIFO vs. FIFO under GAAP and IFRS are an essential part of accounting. We tend to know more about GAAP rather than IFRS because with accounting we are trained to be in compliance with GAAP. Although we should be in compliance with GAAP that does not mean it is necessarily better than IFRS. Or does it? All in all we feel this topic is an important aspect of accounting and that we should know more about the difference in depth between the two. Introduction: There are three forms of inventory costing methods we tend to use LIFO, FIFO, and weighted average cost. “Average-cost method prices items in the inventory on the basis of the average cost of all similar goods available during the period” (Kiso, weygandt, Warfield 429). The two most common methods used that we are going to discuss are LIFO and FIFO. As the name implies, LIFO stands for last-in, first out, which implies that the last product that is placed on the market is the first one to be sold/ purchased. FIFO meaning first-in, first out is the opposite of LIFO, the first item placed is typically the first item to be sold. These two accounting methods tend to differ under GAAP, which is rule based and IFRS, which is considered to be principle based. Differences between GAAP and IFRS A major difference between U.S.GAAP and IFRS is GAAP is rule-based while on the other hand IFRS is considered to be principle-based. What they mean by this is simple. Under GAAP, when preparing a company financial statements they ... ... middle of paper ... ...first out (LIFO) method. Conclusion “While LIFO offers significant benefits over FIFO from a tax reporting stand point, the United States is considering banning the use of LIFO”. Majority of the companies in the United States use the FIFO method, but they also have the choice of using LIFO under U.S.G.A.A.P. The IFRS has completely withdrawn from using the LIFO method. “Many companies believe the repeal of LIFO would result in an incredible tax increase for both large and small businesses.” Now they are focusing on blending the two accounting standards to reduce the differences between the two GAAP and IFRS. With a single set of standards for the whole world, it will be easier to deal with and to comprehend. International investors will be able to compare financial results of companies from the different countries with ease. (FIFO vs. LIFO: What is the Difference?)

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