Comparative Analysis of FIFO and LIFO Methods in Cost Accounting: Implications for Inventory Valuation and Profitability

This research investigates the application and impact of the First-In, First-Out (FIFO) and LastIn, First-Out (LIFO) methods in cost accounting on inventory valuation and profitability of firms. Accurate inventory management is critical for financial reporting, decision-making, and tax planning. Using a combination of qualitative and quantitative analysis, the study examines how FIFO and LIFO affect cost of goods sold, net income, and financial ratios under varying market conditions. The research draws on empirical data from manufacturing and retail firms, highlighting the advantages and limitations of each method. Results indicate that FIFO tends to report higher net income in periods of rising prices, whereas LIFO provides tax benefits and better matching of current costs with revenues. The findings offer practical insights for accountants and managers to select the most suitable inventory valuation method aligned with their financial and operational objectives.