Costs associated with older purchases are included in inventory. LIFO inventory and COGS are not the same under periodic and perpetual systems. Companies that adopt LIFO for tax purposes must use LIFO for financial statement purposes. Companies may combine inventory items into natural groups or pools. Each pool is treated as one unit for the purpose of costing inventory.
Price index is used to convert to base-year dollars.
Advantages of LIFO Proper matching of recent costs with current revenues. Tax benefits Improved cash flow Disadvantages of LIFO Lowers reported earnings. Reports outdated costs on the balance sheet. Contrary to normal physical flow Fails to measure real income.