The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-of-date cost.

Question

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FIFO (First In, First Out) assumes that the first units purchased are the first ones sold, meaning that the cost of goods sold reflects the current cost of inventory. LIFO (Last In, First Out) assumes the opposite, that the most recently purchased units are the first ones sold, meaning that the cost of goods sold reflects older, lower costs. Therefore, each method makes a different choice regarding which financial statement element (inventory) is shown at the out-of-date cost.

The Primary Difference Between FIFO and LIFO Is That Each