Get Revenue Ruling 1997-42 - Last-in, First-out Inventories, Automobile Dealers.. A Franchised

Last in, first out (LIFO) is a method used to account for inventory. Under LIFO, the costs of the most recent products purchased (or produced) are the first to be expensed. LIFO is used only in the United States and is permitted under generally accepted accounting principles (GAAP).

A tax rule, often referred to as the LIFO conformity rule, requires that if companies use LIFO for tax purposes they must also use it for financial reporting purposes. This means that if a company chooses the LIFO method to reduce its tax bills, it will also have to report lower net income in its financial statements.

Under LIFO, a business assumes that the last inventory purchased is the first to be sold. In this case, the business is assumed to have sold the last unit purchased for $32, so the amount the business can deduct against taxable income is $32. This results in $8 of additional taxable income.

The Last-In, First-Out (LIFO) conformity rule is a tax regulation in the United States that stipulates that if a company uses the LIFO method to calculate inventory for tax purposes, it must also use LIFO for financial reporting purposes. What is the LIFO Conformity Rule? – SuperfastCPA CPA Review superfastcpa.com https://.superfastcpa.com › what-is-the-lifo-conform... superfastcpa.com https://.superfastcpa.com › what-is-the-lifo-conform...

This rule prevents companies from reporting lower costs and higher profits to shareholders while simultaneously reporting higher costs and lower profits to tax authorities. The rule, therefore, ensures consistency between a company's financial statements and its tax returns.