LAST-IN, FIRST-OUT (LIFO)

LAST-IN, FIRST-OUT (LIFO). LIFO is the opposite of FIFO: the most recent costs are moved to expense as sales are made.

Theoretically, the LIFO assumption is often justified as more in line with the matching principle. Shirt One

Don't use plagiarized sources. Get Your Custom Essay on
LAST-IN, FIRST-OUT (LIFO)
Just from $13/Page
Order Essay

was bought on October 26 whereas Shirt Two was not acquired until December 29. Revenue was earned on

December 31. Proponents of LIFO argue that matching the December 29 cost with the December 31 revenue is

more appropriate than using a cost incurred months earlier. According to this reasoning, income is more properly

determined with LIFO because a relatively current cost is shown as cost of goods sold rather than a figure that is

out-of-date. The difference is especially apparent in periods of high inflation. “By matching current costs against

current sales, LIFO produces a truer picture of income; that is, the quality of income produced by the use of LIFO

is higher because it more nearly approximates disposable income” (Rumble, 1983). Note 1 to the 2008 financial

statements for ConocoPhillips reiterates that point: “LIFO is used to better match current inventory costs with

current revenues.”

The last cost incurred in buying two blue shirts was $70 so that amount is reclassified to expense at the time of

the first sale.

Figure 9.2 Journal Entry—Reclassification of the Cost of One Piece of Inventory Using LIFO

Although the physical results of these transaction are the same (one unit was sold, one unit was retained, and the

company holds $110 in cash), the financial picture painted using the LIFO cost flow assumption is quite different

from in the earlier FIFO example.

LIFO

Cost of Goods Sold (One Unit—the Last One) $70

Gross Profit ($110 Less $70) $40

Ending Inventory (One Unit—the First One) $50

Characteristics commonly associated with LIFO can be seen in this example. When prices rise, LIFO companies

report lower net income (the most recent and, thus, the most costly purchases are moved to expense) and a lower

inventory account on the balance sheet (because the earlier and cheaper costs remain in the inventory T-account).

As will be discussed in a subsequent section, LIFO is popular in the United States because it helps reduce the

amount companies pay in income taxes.

Academic Heros
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

Our writers are encouraged to read and research widely to have rich information before writing clients’ papers. Therefore, be it high school or PhD level paper, it will always be a well-researched work handled by experts.

Professional and Experienced Academic Writers

For one to become part of our team, thorough interview and vetting is undertaken to make sure their academic level and experience are beyond reproach, hence enabling us give our clients top quality work.

Free Unlimited Revisions

Once you have received your paper and feel that some issues have been missed, just request for revision and it will be done. In addition, you can present your work to the tutor and he/she asks for improvement/changes, we are always ready to assist.

Prompt Delivery and 100% Money-Back-Guarantee

All our papers are sent to the clients before the deadline to allow them time to review the work before presenting to the tutor. If for some reason we feel our writers cannot meet the deadline, we will contact you to ask for more time. If this is not possible, then the paid amount will be refunded.

Original & Confidential

Our writers have been trained to ensure work produced is free of plagiarism. Software to check originality are also applied. Our clients’ information is highly guarded from third parties to ensure confidentiality is maintained.

24/7 Customer Support

Our support team is available 24 hours, 7 days a week. You can reach the team via live chat, email or phone call. You can always get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

You have had a hectic day, and still need to complete your assignment, yet it is late at night. No need to panic. Place your order with us, retire to bed, and once you wake up, the paper will be ready.

Essays

Essay Writing Service

It does not matter the urgency of your paper, or the academic level, our team is ready to help you 24/7. Just contact us and all your academic needs will be sorted.

Admissions

Admission Essays & Business Writing Help

A student is often required to write an admission letter requesting to be admitted in a certain institution. For you to be gain that admission in your dream institution, you must write a convincing letter. You can depend on our team for the best admission letters.

Reviews

Editing Support

Academic writing is not just about getting information and throwing it all over. Our team will ensure you have a polished paper that is coherent and has a good flow of information. We also ensure the paper follows the correct formatting styles like APA, Harvard, MLA, Chicago/Turabian.

Reviews

Revision Support

If our writers write a paper but you are not satisfied in one way or another, you can always ask for revision. This is totally free. Our writers and editors will revise your paper untill you are be totally satisfied. We as well offer revision for papers not done by our writers at a small fee.