The LIFO method stands for "Last In, First Out".
It is an accounting method for inventory management and stocktaking. You have to be very careful because this method is forbidden in France. The aim of this method is to sell first the products produced or bought last.
In concrete terms, this method means that the company gets rid of the most recently acquired assets first. In this case, when assets are removed from inventory, their value is reported as the price of the last such assets that were entered into inventory.
This is in contrast to the FIFO method which stands for "First In, First Out".
What are the advantages of the LIFO method?
- It allows for price changes over time.
- It allows for price increases in inventory assets.
- This method gives the most accurate manufacturing cost because it is the most recent.
What are the disadvantages of the LIFO method?
- This method is prohibited in France.
- It does not give an exact value of the assets that remain in stock.
- There is a very high risk of ending up with old or absolute stocks.