Question.3878 - Which concept(s) from this chapter is(are) the most difficult for you? What arguments can be made for using either FIFO or LIFO? Why do some refer to the FIFO method as a balance sheet approach and LIFO as an income statement approach?
Answer Below:
The most challenging chapter for me is LIFO and FIFO and how they impact financial statements. FIFO assumes that the earliest (oldest) items purchased are the first to be sold, whereas FIFO assumes the recent inventory is sold first, reducing taxable income and, thus, taxes (Karan, 2023). FIFO is often referred to as a "balance sheet approach" because it leaves the most recently purchased (and typically higher-priced) inventory on the balance sheet, and LIFO is referred to as an "income statement approach." After all, it emphasizes matching the most recent costs with revenues, directly impacting the net income by increasing COGS during inflation (Karan, 2023). References: Karan, R. (2023, March 20). Difference Between FIFO and LIFO - Shiksha Online. Shiksha.com; Shiksha Online. https://www.shiksha.com/online-courses/articles/difference-between-fifo-and-lifo/ More Articles From Accounting
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