Direct comparison
FIFO vs LIFO: Inventory Cost Methods Compared
FIFO vs LIFO compared: what each assumes, what the IRS requires (Form 970, per-item lower of cost or market) and which formulas IAS 2 names.
Written and maintained by CASRAI Editorial Board
Last updated
Ask CASRAI · free to try
Ask about FIFO vs LIFO: Inventory Cost Methods Compared
Ask your first 2 questions free below. Subscribers get 150 a day for $29 a month.
An AI assistant specialized in research administration. It cites the sources behind every answer, labels web answers and says when it can't answer.
Answers draw on CASRAI's guides and dictionary plus the federal and funder documents we index: Federal Register, Grants.gov, Regulations.gov and UKRI.
Works on this site and inside Claude, Cursor and the AI tools you already use.
Everything CASRAI publishes — this page, the dictionary, the guides and the news — stays free to read, with no account and no card.
How do FIFO (first-in, first-out), LIFO (last-in, first-out) compare side by side?
The table below compares FIFO (first-in, first-out), LIFO (last-in, first-out) across 11 procurement-relevant dimensions, from core assumption through source.
Side-by-side comparison
| Dimension | FIFO (first-in, first-out) | LIFO (last-in, first-out) |
|---|---|---|
| Core assumption | Items purchased or produced first are assumed to be the first ones sold. | Items purchased or produced last are assumed to be the first ones sold. |
| Costs left in ending inventory | The most recent purchase or production costs. | By the same logic, the earlier purchase costs remain in ending inventory. |
| Cost flow vs physical flow | An accounting assumption about which costs are sold first. Physical rotation by expiry date is a separate stock-handling rule (FEFO). | An accounting assumption about which costs are sold first. It does not describe, and does not require, newest-stock-first handling on the shelf. |
| Filing to adopt (IRS) | Form 970 is specific to LIFO, so it does not apply here. | File Form 970, or a statement with the same information, with the timely filed tax return for the year LIFO is first used. |
| Changing methods (IRS) | A change in the method or basis used to value inventory is a change in accounting method that generally needs IRS approval. | The same rule applies: a change in the inventory method or basis generally needs IRS approval. |
| Lower of cost or market (IRS) | Compare the market value of each item with its cost and use the lower; each item is valued separately. | The same per-item comparison applies when the lower-of-cost-or-market approach is used. |
| Retail method (IRS) | Pub 538 states the markdown adjustment for the retail method in its LIFO discussion, not under FIFO. | Under the retail method with LIFO, retail selling prices must be adjusted for markdowns as well as markups. |
| IAS 2 (IFRS) | Named as a cost formula for items that are ordinarily interchangeable (alongside weighted average). | Not among the cost formulas the IAS 2 summary names (specific identification, FIFO, weighted average). |
| Items that are not interchangeable | IAS 2 assigns cost by specific identification for items not ordinarily interchangeable, instead of FIFO. | The same IAS 2 rule applies: specific identification for items not ordinarily interchangeable. |
| When to pick each | Pick FIFO when the accountant confirms that valuing ending stock at the most recent costs suits the business and the reporting framework it follows, including IFRS. | Consider LIFO only after an accountant confirms it is permitted under the reporting framework in use and the business can meet the IRS adoption steps above. |
| Source | IRS Publication 538 (irs.gov/publications/p538) and IFRS Foundation, IAS 2 Inventories (ifrs.org), both read 2026-10-29. | IRS Publication 538 (irs.gov/publications/p538) and IFRS Foundation, IAS 2 Inventories (ifrs.org), both read 2026-10-29. |
Common questions
Common questions about FIFO (first-in, first-out) vs LIFO (last-in, first-out)
What is the difference between FIFO and LIFO?
+
FIFO assumes the items purchased or produced first are the first ones sold. LIFO assumes the items purchased or produced last are the first ones sold. Both are assumptions about which costs flow to cost of goods sold (IRS Publication 538).
Is FIFO or LIFO the same as first-expired, first-out stock rotation?
+
No. FIFO and LIFO assign costs for accounting; they do not describe how reagents or consumables are physically moved. Rotation by expiration date is covered on the FIFO vs FEFO page.
What does the IRS require to use LIFO?
+
Publication 538 says to file Form 970, or a statement with the same information, with the timely filed tax return for the year LIFO is first used. Changing the inventory method or basis generally needs IRS approval.
Does IAS 2 allow LIFO?
+
The IFRS Foundation summary of IAS 2 names specific identification for items that are not ordinarily interchangeable, and the FIFO or weighted average cost formula for items that are. LIFO is not among the formulas it names.
Do the IRS rules apply per item or to the whole inventory?
+
For lower of cost or market, Publication 538 says each item in the inventory must be valued separately.
