Lesson 6: Inventory Valuation Methods: Introduction to LIFO (Last-In, First-Out)

• What does Last-In, First-Out mean in inventory valuation?
• How does LIFO assign costs to Cost of Goods Sold and Ending Inventory?
• How does LIFO affect financial statements during inflation?
• Why might a company prefer LIFO over FIFO?
• Why is LIFO not allowed under international accounting standards?

LIFO (Last-In, First-Out)
Cost Flow Assumption
Cost of Goods Sold (COGS)
Ending Inventory
Gross Profit
Net Income
Inflation
Tax Liability
IFRS (International Financial Reporting Standards)
Perpetual Inventory System
Periodic Inventory System

HS.CTE.2A – Recall and apply prior knowledge for intended purpose.
HS.CTE.2B – Pose questions and make predictions about problems.
HS.CTE.2C – Apply a solution using evidence and reasoning.

Students apply algebraic reasoning and analyze cause-and-effect relationships between rising costs, profit, and taxation. Students interpret financial data trends, strengthening analytical reasoning and evidence-based explanation skills assessed on standardized exams.

Description: Introduces LIFO as a cost flow assumption and contrasts it with FIFO. Students calculate Cost of Goods Sold and Ending Inventory using rising-cost scenarios and observe that LIFO assigns the most recent (higher) costs to COGS first.

Purpose: To develop procedural fluency in LIFO calculations while deepening students’ understanding of financial reporting strategy, tax implications, and international accounting differences

DOK 1
• Define LIFO.
• Which inventory costs are assigned to COGS under LIFO?

DOK 2
• Calculate COGS and Ending Inventory using LIFO.
• Describe how LIFO affects Gross Profit when prices increase.

DOK 3
• Why does LIFO result in lower Net Income during inflation?
• How does lower net income impact tax liability?

Students connect LIFO to industries affected by rising commodity prices such as oil, fuel, and manufacturing.

Students may assume LIFO means newest items physically leave first.

• Side-by-side comparison charts (FIFO vs LIFO)
• Color-coded inventory layers
• Guided modeling before independent practice
• Step-by-step structured worksheets
• Small-group analysis discussion
• Excel modeling for advanced learners
• Spanish vocabulary support for ELL students
• One-on-one reteaching for cost-layer confusion

• Guided LIFO Practice Problems
• Independent LIFO Calculation Worksheet
• Comparison Exit Ticket:
“Under inflation, which method benefits a company more from a tax perspective? Explain.”
• Short Quiz (calculation + analysis questions)
• Online gaming quiz (Kahoot / Quizizz)

Century 21 Accounting General Journal, 11th Edition (print or MindTap)
Guided Notes
Comparison Worksheet (FIFO vs LIFO)
Calculator
Whiteboard for modeling cost layers
Optional: Excel demonstration model
Exit Ticket