{"id":25972,"date":"2025-05-16T06:49:52","date_gmt":"2025-05-16T06:49:52","guid":{"rendered":"https:\/\/www.hashmicro.com\/ph\/blog\/?p=25972"},"modified":"2026-03-30T08:21:22","modified_gmt":"2026-03-30T08:21:22","slug":"lifo","status":"publish","type":"post","link":"https:\/\/www.hashmicro.com\/ph\/blog\/lifo\/","title":{"rendered":"Understanding LIFO: What Last In, First Out Means and How It Works"},"content":{"rendered":"<p>Inventory decisions are not only operational but also strategic. LIFO or Last In First Out is a method that companies use to manage and value inventory by assuming the newest stock is sold first. While the concept is simple, the implications for cost control, tax strategies, and financial reporting are not.<\/p>\n<p>It can offer tactical advantages for companies facing rising material costs or seasonal fluctuations. This article outlines how it works, why it matters, and how your business can decide if it is right for you.<\/p>\n<table style=\"border-collapse: collapse; background-color: #fffacd; border-radius: 25px 25px 25px 25px;\" width=\"100%\">\n<tbody>\n<tr>\n<td style=\"padding: 15px; border: none;\">\n<h3 style=\"margin-bottom: 10px;\"><span style=\"background-color: #990000; color: #ffffff; padding: 5px;\"><b>Key Takeaways<\/b><\/span><\/h3>\n<ul>\n<li style=\"font-weight: 400;\"><a href=\"#A\">LIFO is an inventory valuation method<\/a> that records the most recently acquired items as the cost of goods sold. It&#8217;s particularly useful when purchase prices are rising, as it aligns COGS more closely with current market costs and can lower taxable income.<\/li>\n<li>Compared to FIFO, <a href=\"#B\">LIFO produces higher COGS<\/a> and lower taxable income during inflation, but it also results in a lower carrying value for remaining inventory on the balance sheet.<\/li>\n<li><a href=\"#C\">While LIFO can improve cash flow<\/a> through tax savings, it introduces reporting complexity and may understate the actual value of on-hand inventory making it a poor fit for businesses with global reporting obligations.<\/li>\n<li><a href=\"#D\">LIFO is not illegal, but it is banned under IFRS<\/a>. Businesses operating in international markets must review their local compliance requirements before adopting it.<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<div id=\"toc_group_article\" style=''>\r\n\t<p style='font-size:25px;font-weight:bold; margin-bottom:0px'>\r\n\t\tTable of Contents\r\n\t<\/p>\r\n\t<ul id=\"list_toc\" class='list_toc'><\/ul>\r\n<\/div>\r\n\r\n<div id=\"placeholder-toc\"><\/div>\r\n<div id=\"toc\">\r\n    <div class=\"header\">\r\n\t<span class=\"toc-title\" id=\"toc-title\">Content Lists<\/span>\t\r\n\t <i class=\"toc-icon\">\r\n        <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"30\" height=\"30\" viewBox=\"0 0 24 24\" fill=\"none\" stroke=\"#000\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\" class=\"header-icon\">\r\n          <path d=\"m6 9 6 6 6-6\" \/>\r\n        <\/svg>\r\n      <\/i>\r\n\t<\/div>\r\n    <div class=\"list\">\r\n      <ul id=\"toc-list\"><\/ul>\r\n    <\/div>\r\n <\/div>\r\n\r\n<style>\r\n\/* Simple styling for the TOC *\/\r\n\t\r\n\t#toc ul li:last-child {\r\n    padding-bottom: 16px; \/* Adjust the value as needed *\/\r\n}\r\n\r\n.td-fix-index {\r\n\t transform: unset !important;\r\n     -webkit-transform: unset !important; \r\n}\r\n.footer-contact .td-fix-index {\r\n\t transform: translateZ(0) !important;\r\n     -webkit-transform: translateZ(0) !important; \r\n}\r\n\t.tdb_single_content .tdb-block-inner.td-fix-index{\r\n\t\tposition: static;\r\n\t}\r\n\t\r\n\r\n\t\r\n#toc {\r\n  background-color: #FFF;\r\n\tpadding: 17px 24px 20px 24px !important;\r\n  margin-bottom: 20px;\r\n\/*   border: 1px solid #9C171E; *\/\r\n  border-radius: 6px;\r\n\tdisplay: none;\r\n  max-width: 100%;\r\n  transition: .4s ease height;\r\n\tmargin-left: 0;\r\n\toverflow: hidden;\r\n}\r\n\r\n#toc .header{\r\n  display: flex;\r\n  align-items: center;\r\n  justify-content: space-between;\r\n\tbackground-color: transparent;\r\n}\r\n\t\r\n\t#toc.sticky .header{\r\n\t\tpadding: 4px 0;\r\n\t}\r\n\t\r\n.header p{\r\n  font-size: 18px !important;\r\n  font-weight: 600 !important;\r\n  color: #393939;\r\n   margin-bottom: 0;\r\n  \/* margin-top: 20px; *\/\r\n}\r\n\r\n.toc-icon{\r\n  float: right;\r\n\/*   visibility: hidden; *\/\r\n}\r\n\r\n\t.toc-title{\r\n\t\tmargin-right: auto;\r\n\/* \t\tpadding-left: 20px; *\/\r\n\t\tfont-weight: 600;\r\n\t\talign-self: center;\t}\t\r\n\r\n#toc ul {\r\n  list-style-type: none;\r\n  padding-left: 0;\r\n  padding-top: 20px;\r\n  margin-top: 0px;\r\n}\r\n\t\r\n#toc.sticky ul{\r\n\toverflow-y: auto;\r\n\tmax-height: 250px;\r\n\tmargin-top: 0px;\r\n\tpadding-top: 20px;\r\n\/* \tborder-top: 1px solid #d3d3d3; *\/\r\n}\r\n\t\r\n#toc ul li {\r\n\/*   margin-bottom: 10px; *\/\r\n  margin-bottom: 10px;\r\n\tmargin-left: 0;\r\n\ttransition: .2s ease;\r\n\tcursor: pointer;\r\n}\r\n\t\r\n\t#toc.sticky ul li {\r\n\t  margin-right: 10px;\r\n\t}\r\n\t\r\n.td-post-content #toc-list li a:hover, .td-post-content #toc-list a.active{\r\n\tbackground-color: #FFF;\r\n\/* \tpadding: 8px 16px 8px 16px; *\/\r\n\tpadding: 4px 16px 4px 16px;\r\n\tborder-radius: 6px;\r\n\tcolor: #9c171e !important;\r\n\tfont-weight: 600 !important;\r\n}\r\n\t\r\n\t.td-post-content #toc-list li:hover a, .td-post-content #toc-list a.active{\r\n\t\tcolor: #9C171E !important;\r\n\t\tfont-weight: 600 !important;\r\n\t}\r\n\t\r\n.td-post-content #toc-list a.active{\r\n\tfont-weight: bold !important;\r\n\tcolor: #9C171E !important;\r\n}\r\n\t\r\n#toc a, .td-post-content #toc-list a {\r\n  text-decoration: none;\r\n  color: #ea1717 !important;\r\n  transition: .2s ease;\r\n\tfont-weight: 400 !important;\r\n\tdisplay: block;\r\n\t\r\n\tpadding: 4px 16px 4px 0;\r\n}\r\n\r\n#toc.sticky {\r\n  position: fixed;\r\n\/*   top: 73px; *\/\r\n\tbottom: 0;\r\n  z-index: 100; \r\n  box-shadow: 0 2px 5px rgba(0,0,0,0.1); \r\n\twidth: 100%; \r\n\tbackground-color: #FFF;\r\n\/* \tbackground-color: #FFF1F1; *\/\r\n\tborder-bottom: 1px solid #ea1717;\r\n\/*   border: 1px solid #393939; *\/\r\n  box-shadow: 0px 0px 14px 0px #00000040;\r\n  cursor: pointer;\r\n\tanimation: fadein .3s ease;\r\n\tpadding: 12px 16px !important;\r\n}\r\n\t\r\n\t.fadein{\r\n\t\tanimation: fadein .3s ease;\r\n\t}\r\n\t\r\n\t.fadeout{\r\n\t\tanimation: fadeout .3s ease;\r\n\t}\r\n\t\r\n\t\r\n\t@keyframes fadein{\r\n\t\t0% {\r\n\t\t\topacity: 0;\r\n\t\t}\r\n\t\t100%{\r\n\t\t\topacity: 1;\r\n\t\t}\r\n\t}\r\n\t\r\n\t@keyframes fadeout{\r\n\t\t0% {\r\n\t\t\topacity: 1;\r\n\t\t}\r\n\t\t100%{\r\n\t\t\topacity: 0;\r\n\t\t}\r\n\t}\r\n\r\n\t\r\n#toc.sticky .header p{\r\n\tmargin-bottom: 10px;\r\n\tmargin-top: 10px;\r\n}\r\n\r\n#toc.sticky .toc-icon{\r\n  visibility: visible;\r\n\/* \ttransition: 0.4s ease; *\/\r\n}\r\n\t\r\n\t.toc-icon{\r\n\t\talign-items: center;\r\n    \tdisplay: flex;\r\n\t}\r\n\t\r\n\tsvg.header-icon{\r\n\/* \t\tbackground-color: #9c171e; *\/\r\n\t\tbackground-color: #FFF;\r\n\t\tborder-radius: 30px;\r\n\t\tpadding: 5px;\r\n\t}\r\n\r\n#toc.sticky .list{\r\n\/*   max-height: 0; *\/\r\n  transition: height 0.4s ease;\r\n}\r\n\t\r\n\t#toc .list{\r\n\/*   max-height: 0; *\/\r\n  transition: height 0.4s ease;\r\n}\r\n\r\n#toc .header.active .toc-icon{\r\n\ttransform: rotate(0deg); \r\n\topacity: 1;\r\n}\r\n\r\n\t#toc .header.active + .list {\r\n\t  max-height: 200px; \/* Adjust this value as needed *\/\r\n\t  opacity: 1;\r\n\t}\r\n\t\r\n\t#placeholder-toc{\r\n\/* \t\tdisplay: none; *\/\r\n\t}\r\n\t\r\n\t@media (min-width: 768px) and (max-width: 991px){\r\n\t\t#toc.sticky{\r\n\/* \t\t\ttop: 104px; *\/\r\n\t\t\tbottom: 0px;\r\n\t\t}\r\n\t\t\r\n\t\t#toc{\r\n\t\t\twidth: unset !important;\r\n\t\t}\r\n\t}\r\n\t\r\n\t@media (max-width: 767px){\r\n\t\t#toc{\r\n\t\t\twidth: 100% !important;\r\n\t\t\tdisplay: inline-block;\r\n\t\t}\r\n\t\t\r\n\t\t#toc.sticky{\r\n\t\t\twidth: 84% !important;\r\n\/* \t\t\ttop: 81px; *\/\r\n\t\t\tbottom: 60px;\r\n\t\t\tmargin-left: auto;\r\n\t\t\tmargin-right: auto;\r\n\t\t\tpadding: 0 16px;\r\n\/* \t\t\tright: 5%; *\/\r\n\t\t}\r\n\t}\r\n<\/style>\r\n\r\n<style>\r\n\t#list_toc li {margin-bottom: 0;margin-top: 5px;}\r\n\t#list_toc > li > ul {padding-left: 20px;margin-bottom: 0;}\r\n\t#list_toc{height:max-content;transition:ease-in-out}\r\n\t#list_toc li {margin-bottom: 0;margin-top: 5px;}\r\n\t#list_toc_float li.active > a {color:#b1252d;background: #ffe1e3;}\r\n\t#list_toc_float li a {padding:3px 7px}\r\n\t#list_toc_float li a {\r\n\t\tdisplay: block;\r\n\t\tcolor:#000;\r\n\t\tmargin-bottom: 10px;\r\n\t\ttransition:all 0.2s ease-in-out;\r\n\t\tfont-size:15px\r\n\t}\r\n\t#list_toc_float li{list-style:none;list-style-position:inside; margin-left:0;}\r\n\t#list_toc_float a:hover{color:#b1252d;}\r\n\t\r\n\t#list_toc_float li a{margin-bottom:0px}\r\n\t#toc_group_float{\r\n\t\tline-height: 24px;\r\n\t\tmax-height: calc(100vh - 100px);\r\n\t\toverflow: auto;\r\n\t\tz-index: 99;\r\n\t\tdisplay:none!important;\r\n\t\tbackground:#fff;\r\n\t\ttransition:all 0.5s linear\r\n\t}\r\n\t\r\n\t@media (min-width:1019px){\r\n\t\t#toc_group_float {\r\n\t\t\tdisplay:block!important;\r\n\t\t\t}\r\n\t\t\t\t#toc_group_article {\r\n\t\t\tdisplay:none;\r\n\t\t}\r\n\t}\r\n\t\r\n\t@media (max-width:768px){\r\n\t\t#toc_group_article {\r\n\t\t\tdisplay:none;\r\n\t\t}\r\n\t}\r\n\t\r\n\t \/* custom scrollbar style *\/\r\n::-webkit-scrollbar {\r\n    width: 7px;\r\n}\r\n::-webkit-scrollbar-track {\r\n    background: #d7a2a4;\r\n}\r\n::-webkit-scrollbar-thumb {\r\n    background: #b1252d;\r\n    border-radius: 15px;\r\n}\t\t\r\n\r\n<\/style>\r\n\r\n<script>\r\n\tdocument.addEventListener('DOMContentLoaded', function() {\r\n\t\t\/\/ Function to handle click on all <a> elements with href starting with #\r\n\t\tfunction handleTitleClick(event) {\r\n\t\t\tevent.preventDefault();\r\n\t\t\tconst targetId = this.getAttribute('href').substring(1);\r\n\t\t\tconst targetElement = document.getElementById(targetId);\r\n\r\n\t\t\tif (targetElement) {\r\n\t\t\t\tconst headerHeight = document.querySelector('#toc .header').offsetHeight;\r\n\t\t\t\tconst navbarHeight = document.getElementById('tdi_34') ? document.getElementById('tdi_34').offsetHeight : 0;\r\n\t\t\t\tconst windowHeight = window.innerHeight;\r\n\t\t\t\tconst targetOffset = targetElement.offsetTop;\r\n\t\t\t\tconst scrollTo = targetOffset + (windowHeight \/ 2) + (headerHeight) - navbarHeight - 40;\r\n\r\n\t\t\t\twindow.scrollTo({\r\n\t\t\t\t\ttop: scrollTo,\r\n\t\t\t\t\tbehavior: 'smooth'\r\n\t\t\t\t});\r\n\t\t\t}\r\n\t\t}\r\n\r\n\t\t\/\/ Add event listener for all <a> elements in toc-list and list-toc\r\n\t\tconst titleLinks = document.querySelectorAll('#toc-list a, #list_toc a');\r\n\t\ttitleLinks.forEach(link => {\r\n\t\t\tlink.addEventListener('click', handleTitleClick);\r\n\t\t});\r\n\t});\r\n<\/script>\r\n\r\n<!-- ToC List for mobile -->\r\n<script>\r\n \/\/ Generate TOC based on headings\r\ndocument.addEventListener(\"DOMContentLoaded\", function() {\r\n  \/\/ Get the element that will contain the TOC\r\n  const tocList = document.getElementById('toc-list');\r\n\r\n  \/\/ Get the element with class 'td-post-content'\r\n  const article = document.querySelector('.td-post-content');\r\n\r\n  \/\/ Find all h2 elements within the article\r\n  const headers = article.getElementsByTagName('h2');\r\n\r\n  \/\/ Loop through the h2 elements and create a list item for each one\r\n  for (let i = 0; i < headers.length; i++) {\r\n    const header = headers[i];\r\n    const headerText = header.textContent;\r\n\/\/     const headerId = 'header-' + i;\r\n    const headerId = headerText\r\n    .toLowerCase()\r\n    .trim()\r\n    .replace(\/[^\\w\\s-]\/g, '')  \/\/ hapus tanda baca\r\n    .replace(\/\\s+\/g, '-'); \/\/ ganti spasi jadi \"-\"\r\n\r\n    \/\/ Set an ID for the header if it doesn't have one\r\n    header.setAttribute('id', headerId);\r\n\r\n    \/\/ Create a list item for the TOC\r\n    const listItem = document.createElement('li');\r\n\r\n    \/\/ Create a link for the list item\r\n    const link = document.createElement('a');\r\n    link.setAttribute('href', '#' + headerId);\r\n    link.textContent = headerText;\r\n\r\n    \/\/ Append the link to the list item\r\n    listItem.appendChild(link);\r\n\r\n    \/\/ Append the list item to the TOC list\r\n    tocList.appendChild(listItem);\r\n  }\r\n});\r\n\r\n\/\/ Keep height and placement of content using placeholder in place of TOC\r\ndocument.addEventListener(\"DOMContentLoaded\", function() {\r\n  const toc = document.querySelector('#toc');\r\n  const placeholderToc = document.querySelector('#placeholder-toc');\r\n\r\n  function setPlaceholderHeight() {\r\n    placeholderToc.style.height = `${toc.offsetHeight}px`;\r\n  }\r\n\r\n  \/\/ Set the initial height of the placeholder\r\n  setPlaceholderHeight();\r\n\r\n  \/\/ Update the height on window resize\r\n  window.addEventListener('resize', setPlaceholderHeight);\r\n});\r\n  const tocTitle = document.querySelector('#toc-title');\r\n\r\n\/\/ Sticky TOC and update heading\r\ndocument.addEventListener(\"DOMContentLoaded\", function() {\r\n  const toc = document.querySelector('#toc');\r\n  const footer = document.querySelector('.td-footer-template-wrap');\r\n  const tocParent = toc.parentElement;\r\n  const divTop = tocParent.getBoundingClientRect().top + window.pageYOffset;\r\n  const tocHeight = toc.offsetHeight;\r\n  const triggerPoint = divTop + tocHeight + 700;\r\n  const footerHeight = footer.offsetHeight;\r\n  const triggerFooterPoint = footer.getBoundingClientRect().top + window.pageYOffset - footerHeight - footerHeight - footerHeight;\r\n  const phtoc = document.querySelector('#placeholder-toc');\r\n  const headers = document.querySelectorAll('.td-post-content h2');\r\n  const navLinks = document.querySelectorAll('#toc-list a');\r\n\t\r\n\tconst panel2 = document.querySelector(\"#toc .list\");\r\n\tvar icon = document.querySelector(\".toc-icon\");\r\n\r\n  let activeLink = null; \/\/ Declare activeLink outside the loop\r\n\t\r\n  \/\/ Function to handle scroll and add\/remove .sticky class\r\n  function handleScroll() {\r\n    const windowTop = window.pageYOffset || document.documentElement.scrollTop;\r\n    let currentHeader = '';\r\n\r\n    \/\/ Highlight user progress as the heading comes\r\n    headers.forEach(header => {\r\n\t\tconst headerTop = header.offsetTop;\r\n\t\tconst headerHeight = header.clientHeight;\r\n\t\tif(window.innerWidth < 767){\r\n\t\t\ttocTitle.textContent = 'Table of Contents'; \/\/ Selalu pertahankan judul ini di mobile\r\n\t\t} else {\r\n\t\t\tif (window.scrollY >= (headerTop - headerHeight + 700)) {\r\n\t\t\t\tconst currentHeaderId = header.getAttribute('id');\r\n\t\t\t\tconst currentHeaderText = document.getElementById(currentHeaderId).textContent;\r\n\t\t\t\ttocTitle.textContent = currentHeaderText;\r\n\t\t\t\tcurrentHeader = currentHeaderId;\r\n\t\t\t}\r\n\t\t}\r\n\t});\r\n\r\n    navLinks.forEach(link => {\r\n      link.classList.remove('active');\r\n      if(currentHeader != '') {\r\n\t\t  if (link.getAttribute('href').includes(currentHeader)) {\r\n\t\t\t  link.classList.add('active');\r\n\t\t  }\r\n\t  }\r\n    });\r\n\r\n    \/\/ Update TOC title if sticky\r\n    if (windowTop > triggerPoint) {\r\n      if (!toc.classList.contains('sticky')) {\r\n        phtoc.style.display = \"block\";\r\n        toc.classList.add('sticky');\r\n        toc.style.width = `${tocParent.offsetWidth}px`; \/\/ Set width to match the parent element\r\n        toc.setAttribute('style', 'width: ' + tocParent.offsetWidth + 'px !important;');\r\n        toc.style.backgroundColor = \"#FFF\";\r\n\t\tpanel2.style.height = '0px';\r\n\t\t  icon.style.transform = \"rotate(180deg)\";\r\n\t\t  if(window.innerWidth < 767){\r\n\t\t\t  tocTitle.textContent = 'Table of Contents'; \/\/ Reset title\r\n       \t\t  toc.style.width = '150px'; \/\/ Set width to match the parent element\r\n\t\t  }\r\n      }\r\n      if (currentHeader) {\r\n        tocTitle.textContent = activeLink ? activeLink.textContent : \"\"; \/\/ Update title only if activeLink exists\r\n      }\r\n    } else {\r\n      toc.classList.remove('sticky');\r\n      phtoc.style.display = \"none\";\r\n      toc.style.width = 'unset'; \/\/ Reset to original width\r\n      toc.style.backgroundColor = \"#FFF\";\r\n      tocTitle.textContent = 'Table of Contents'; \/\/ Reset title\r\n\t\tpanel2.style.height = panel2.scrollHeight + \"px\";\r\n\t\ticon.style.transform = \"rotate(180deg)\";\r\n    }\r\n  }\r\n\r\n    \/\/ Attach the scroll event listener to the window\r\n    window.addEventListener('scroll', handleScroll);\r\n\r\n    \/\/ Initial call to handleScroll to set the correct state on load\r\n    handleScroll();\r\n});\r\n\t\r\n\t\/\/ Open toggle TOC\r\n\t  document.addEventListener(\"DOMContentLoaded\", function() {\r\n\t\tvar tocHeader = document.querySelector(\"#toc .header\");\r\n\t\tvar toc = document.querySelector(\"#toc\");\r\n\t\tvar icon = document.querySelector(\".toc-icon\");\r\n\t\tconst tocTitle = document.querySelector('#toc-title');\r\n\t\tconst tocs = document.querySelector('#toc.sticky');\r\n \t\tconst tocParent = toc.parentElement;\t\t  \r\n\r\n\t\t  tocHeader.addEventListener(\"click\", function() {\r\n\t\t\tvar panel = this.nextElementSibling;\r\n\t\t\tif (panel.style.height !== '0px') { \/\/ Check if height is not 0px\r\n\t\t\t  panel.style.height = '0px'; 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Under this approach, the most recently purchased or produced items are recorded as the cost of goods sold (COGS) when a sale is made, while older inventory remains on the balance sheet at its original acquisition cost. For example, if a company first buys raw materials at \u20b1500 per unit and later purchases the same materials at \u20b1600, LIFO records the \u20b1600 units as sold first leaving the \u20b1500 units as remaining inventory.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\"><span id=\"B\"><\/span>This method is commonly adopted by businesses that deal with rising procurement costs, as it aligns COGS more closely with current market prices and can reduce taxable income during inflationary periods. When integrated into a <a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" href=\"https:\/\/www.hashmicro.com\/ph\/blog\/perpetual-inventory-system\/\">perpetual inventory system<\/a>, LIFO allows companies to track real-time inventory movements while keeping cost data consistent with market conditions.<\/p>\n<h2><strong>The Key Differences Between LIFO and FIFO<\/strong><\/h2>\n<p>Understanding the key differences between LIFO and FIFO is crucial for businesses to make informed <a href=\"https:\/\/www.hashmicro.com\/ph\/blog\/inventory-control\/\">inventory control<\/a>, taxation, and financial reporting decisions. Let&#8217;s break down how each method affects your company&#8217;s financials with a quick comparison.<\/p>\n<table>\n<tbody>\n<tr>\n<td style=\"background-color: #990000; color: #ffffff; padding: 5px; text-align: center;\" width=\"25%\"><b><span id=\"C\"><\/span>Aspect<\/b><\/td>\n<td style=\"background-color: #990000; color: #ffffff; padding: 5px; text-align: center;\" width=\"25%\"><b>LIFO<\/b><\/td>\n<td style=\"background-color: #990000; color: #ffffff; padding: 5px; text-align: center;\" width=\"25%\"><b>FIFO<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Inventory Valuation<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Assumes the newest inventory is sold first.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Assumes the oldest inventory is sold first.\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Cost of Goods Sold (COGS)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Higher COGS during inflation due to recent higher costs.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Lower COGS during inflation, as older, cheaper inventory is sold first.\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Tax Implication<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It may reduce tax liabilities in inflationary times.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Higher tax liabilities due to higher reported profits.\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><strong>The Advantages and Disadvantages of Using LIFO<\/strong><\/h2>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-33719 size-large\" src=\"https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-1024x572.webp\" alt=\"advantage and disadvantage of lifo\" width=\"696\" height=\"389\" srcset=\"https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-1024x572.webp 1024w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-300x168.webp 300w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-768x429.webp 768w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-752x420.webp 752w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-150x84.webp 150w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-696x389.webp 696w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719-1068x597.webp 1068w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/ChatGPT-Image-Mar-30-2026-10_07_56-AM-e1774840177719.webp 1536w\" sizes=\"(max-width: 696px) 100vw, 696px\" \/><\/p>\n<p>LIFO offers distinct benefits in specific operating conditions, but it also introduces complexity that may outweigh those benefits for many businesses.<\/p>\n<h3><strong>Advantages of LIFO<\/strong><\/h3>\n<ul>\n<li><strong>Tax savings during inflation<\/strong>: Higher COGS reduces taxable income, allowing businesses to retain more cash during periods of rising costs.<\/li>\n<li><strong>Improved cash flow<\/strong>: Lower tax liabilities translate directly into greater available capital for reinvestment or day-to-day operations.<\/li>\n<li><strong>Better alignment with current market prices<\/strong>: Valuing COGS at recent purchase prices gives a more realistic view of profitability in volatile markets.<\/li>\n<\/ul>\n<h3><strong>Disadvantages of LIFO<\/strong><\/h3>\n<ul>\n<li><strong>Lower inventory value<\/strong>: Remaining stock is recorded at older, lower costs and potentially understating total asset value.<\/li>\n<li><strong>Not accepted in all countries<\/strong>: It is not allowed under specific accounting standards, such as the International Financial Reporting Standards (IFRS), which means it may not be a viable option for global businesses.<\/li>\n<li><strong><span id=\"D\"><\/span>Can lead to inaccurate profit reporting<\/strong>: In stable or declining price environments, LIFO can overstate costs and understate margins.<\/li>\n<li><strong>Complicated for financial reporting<\/strong>: Maintaining separate records for tax and financial reporting purposes adds administrative burden, especially when managing a high-volume <a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" href=\"https:\/\/www.hashmicro.com\/ph\/blog\/warehouse-management\/\">warehouse management process<\/a>.<\/li>\n<\/ul>\n<h2><strong>Is LIFO an Illegal Practice Under Global Accounting Standards?<\/strong><\/h2>\n<p><img decoding=\"async\" class=\"alignnone wp-image-25974 size-full\" src=\"https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2.webp\" alt=\"lifo\" width=\"1200\" height=\"675\" srcset=\"https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2.webp 1200w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-300x169.webp 300w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-1024x576.webp 1024w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-768x432.webp 768w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-747x420.webp 747w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-150x84.webp 150w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-696x392.webp 696w, https:\/\/www.hashmicro.com\/ph\/blog\/wp-content\/uploads\/2025\/05\/LIFO-2-1068x601.webp 1068w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<p>Although LIFO is not illegal, it is not permitted under the International Financial Reporting Standards (IFRS), which are adopted by many countries worldwide. In contrast, the United States allows using LIFO under its Generally Accepted Accounting Principles (GAAP).<\/p>\n<p>While the method remains legally valid in jurisdictions that recognize GAAP, it is considered non-compliant under IFRS. As a result, companies operating in international markets must carefully assess their reporting requirements and regulatory environment before adopting LIFO as an <a href=\"https:\/\/www.hashmicro.com\/ph\/blog\/inventory-valuation\/\">inventory valuation<\/a> method.<\/p>\n<h2><strong>Conclusion<\/strong><\/h2>\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\">LIFO offers a clear advantage for businesses operating in high-inflation environments or industries with frequent cost fluctuations, particularly those subject to U.S. GAAP, where it remains a legitimate option for reducing taxable income. However, its incompatibility with IFRS, tendency to understate inventory values, and added reporting complexity make it a method that requires careful evaluation before adoption.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\">For businesses weighing their options, reviewing how different inventory valuation methods interact with broader financial reporting requirements is an important step. A good place to start is comparing the full range of <a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" href=\"https:\/\/www.hashmicro.com\/ph\/blog\/best-inventory-management-software\/\">best inventory management software<\/a> available today, which can support multiple costing methods and help teams manage compliance more efficiently.<\/p>\n<h2><strong> FAQ LIFO<\/strong><\/h2>\n<ul class=\"bottom_faq\">\n<li>\n<details>\n<summary><strong>What is the difference between LIFO and FIFO in accounting?\u00a0<\/strong><\/summary>\n<p>LIFO (Last In, First Out) and FIFO (First In, First Out) are two inventory valuation methods used in accounting. LIFO assumes the newest inventory is sold first, resulting in higher COGS and lower taxable income during inflation. FIFO assumes the oldest inventory is sold first, producing lower COGS and higher reported profits. The right choice depends on your reporting framework, FIFO is accepted globally under IFRS, while LIFO is only permitted under U.S. GAAP.<\/p>\n<\/details>\n<\/li>\n<li>\n<details>\n<summary><strong>What is the LIFO accounting method and how does it work?<\/strong><\/summary>\n<p>The LIFO accounting method records the most recently acquired inventory as the first to be sold or used. When calculating the cost of goods sold (COGS), businesses apply the cost of their newest stock rather than older purchases. This approach is commonly used during inflationary periods because it aligns COGS with current market prices, reducing taxable income and improving short-term cash flow.<\/p>\n<\/details>\n<\/li>\n<li>\n<details>\n<summary><strong>What is the LIFO and FIFO method in inventory management?<\/strong><\/summary>\n<p>LIFO and FIFO are the two most widely used inventory costing methods. LIFO prioritizes the cost of the most recently purchased items when calculating COGS, while FIFO uses the cost of the oldest inventory on hand. In practice, neither method necessarily reflects the actual physical flow of goods, they are accounting conventions used to determine how inventory costs are reported on financial statements and tax returns.<\/p>\n<\/details>\n<\/li>\n<li>\n<details>\n<summary><strong>What are the key differences between LIFO and FIFO with examples?<\/strong><\/summary>\n<p>The main differences between LIFO and FIFO lie in how each method affects COGS, net income, and inventory value. For example, if a company purchases 100 units at \u20b1500 and later buys 100 more at \u20b1600, selling 100 units under LIFO records COGS at \u20b1600 (most recent cost), while FIFO records it at \u20b1500 (oldest cost). During inflation, LIFO produces higher COGS and lower profit and reducing taxes. FIFO produces lower COGS and higher profit to increasing both reported income and tax liability.<\/p>\n<\/details>\n<\/li>\n<\/ul>\n<p><script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"FAQPage\",\n  \"mainEntity\": [\n    {\n      \"@type\": \"Question\",\n      \"name\": \"What is the difference between LIFO and FIFO in accounting?\",\n      \"acceptedAnswer\": {\n        \"@type\": \"Answer\",\n        \"text\": \"LIFO (Last In, First Out) and FIFO (First In, First Out) are two inventory valuation methods used in accounting. LIFO assumes the newest inventory is sold first, resulting in higher COGS and lower taxable income during inflation. FIFO assumes the oldest inventory is sold first, producing lower COGS and higher reported profits. 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It can offer tactical [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":25973,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[20],"tags":[],"class_list":{"0":"post-25972","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-inventory"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.6 (Yoast SEO v26.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>LIFO Explained: What It Means and How It Works<\/title>\n<meta name=\"description\" content=\"Learn what LIFO is, how it works, and key differences from FIFO including its pros, cons, and GAAP vs IFRS compliance.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.hashmicro.com\/ph\/blog\/lifo\/\" 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