How Would FIFO and LIFO Affect the Income Taxes Paid?
LIFO and FIFO are used as descriptions for inventory. LIFO stands for “last in first out,” which means that the product put into the warehouse last or more recently is what will leave the warehouse for shipment first. FIFO stands for “first in first out.” This means that product that entered the warehouse first will be shipped before more recently built products. How a company decides to handle their inventory can affect their bottom line, or profit. When inventory increases within a month, an income statement will reflect a higher net profit due to a positive increase in the value of the inventory. Also, if cost of goods sold is shown at a low value, this will increase the net income as well. More profit typically means that more taxes will be due. FIFO inventory causes these occurrences. FIFO will keep the cost of goods sold low due to the fact that products built in the past are normally produced with materials that cost less, and therefore their value in the inventory is lower. Usi
