LIFO and FIFO method of inventory is used to calculate the cost of the present inventory and to find out the actual ending inventory. FIFO and LIFO have their own pros and cons. We are comparing both the methods in terms of various issues.
| Issues | FIFO | LIFO |
| Flow of Materials within inventory | FIFO provides a logical flow of the materials and goods from the inventory that means the First thing in will be the First thing out from the inventory | LIFO provides a flow in which the first purchased items are sold first and oldest items are kept in stock |
| The affect of Inflation | The effect of inflation is positive in FIFO method as the cost of goods sold becomes lowers as a result profit and tax increases | If the cost of the goods increases the last items that are sold become less expensive as a result lowers the overall profit of the company. |
| Financial Reporting of the Inventory | FIFO method can be used in financial reporting as there are no restrictions from GAAP and IFRS | IFRS does not use LIFO method of inventory accounting at all |
| Record Keeping Process | The FIFO method is easy for record keeping as the items are sold in a logical and consistent manner | Record keeping of LIFO is a bit tough as the oldest items may remain in inventory for years |
| Fluctuations in Reporting | FIFO has low fluctuations in reporting as there are less number of layers to report | There is dramatic increase and decrease in reporting as the goods are stored for years so there are dramatic price fluctuations |