Calculating net income under FIFO (first in, first out) and LIFO (last in, first out) is a critical accounting method for businesses using inventory. FIFO assumes that the oldest inventory is sold first, while LIFO presumes the recently acquired inventory is sold initially.
Understanding net income calculations under FIFO and LIFO empowers businesses to make informed decisions regarding inventory valuation, financial reporting, and tax implications. Historically, the adoption of LIFO gained popularity during periods of rising inflation to reduce taxable income.