Answer
First, FIFO has a tendency to to value inventories at approximate market value in the balance sheet and LIFO has a tendency to to match approximately the current replacement cost of an item with the revenue produced. Moreover, FIFO matches the first cost incurred with the first revenue produced while LIFO matches the last cost incurred with the first revenue produced after the cost is incurred. Therefore, with the variation of costs, different costs would be matched with revenue for the same quantity sold depending upon whether the LIFO or FIFO system is in use.
Work Step by Step
First In First Out (FIFO) and Last In First Out (LIFO) are both inventory methods applied to measure the flow of costs.
