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Inventory costing: LIFO vs. FIFO

How companies assign a cost to inventory under FIFO and LIFO, with Apple, General Motors, Caterpillar and Costco.

The short answer

Inventory costing is the method a company uses to assign a cost to goods it still holds and to the goods it has sold. The two methods named most often in U.S. 10-Ks are FIFO (first-in, first-out) and LIFO (last-in, first-out). They can produce different inventory balances and different cost of sales when prices are changing, so the accounting-policies note and, for LIFO users, a comparison to FIFO are worth reading alongside the inventory line.

FIFO and LIFO

Under FIFO, the costs that entered inventory first are the costs that leave first when a sale is made. The balance sheet then carries the more recent costs. Apple's 10-K for the year ended September 26, 2026 states, simply, that inventories are measured using the first-in, first-out method. General Motors's 2025 10-K says cost is determined on a first-in, first-out (FIFO) basis.

Under LIFO, the most recent costs are the ones charged to cost of sales, and older costs can remain in the inventory balance. Caterpillar's 2025 10-K says it principally determines cost using the last-in, first-out (LIFO) method, and that the value of inventories on the LIFO basis represented about 70 percent and 65 percent of total inventories at December 31, 2025 and 2024, respectively. Costco's 10-K for the year ended August 30, 2026 values merchandise inventories using the last-in, first-out (LIFO) basis, and says the company believes the LIFO method more fairly presents the results of operations by more closely matching current costs with current revenues.

Source: Apple 10-K for fiscal 2026, filed Nov 3, 2026 · General Motors 10-K for fiscal 2025, filed Jan 27, 2026 · Caterpillar 10-K for fiscal 2025, filed Feb 13, 2026 · Costco 10-K for fiscal 2026, filed Oct 7, 2026

Why the method matters

When purchase prices are rising, LIFO typically produces a higher cost of sales and a lower inventory balance than FIFO, because the newer, higher costs are the ones flowing through the income statement. When prices are falling, the effect runs the other way. Companies that use LIFO often disclose what inventory would have been under FIFO, so a reader can compare the two. Caterpillar's note includes that comparison for year-end 2025 and 2024.

U.S. tax rules have historically tied LIFO for tax purposes to using LIFO in the financial statements, which is one reason some U.S. manufacturers and retailers still use it. IFRS does not allow LIFO, so companies that report under IFRS, and many U.S. companies that want a method that matches physical flow more closely, use FIFO or an average-cost method instead. Some companies use more than one method in different businesses or countries, and they say so in the policy note.

Inventory also has to be carried at the lower of cost or net realizable value (or, in some cases, market), regardless of the costing method. Inventory and inventory turnover covers the balance-sheet line, write-downs and turnover. The costing method is the rule that assigns the cost being compared with that value.

Common questions

What is FIFO?

First-in, first-out: the earliest costs in inventory are the first costs charged to cost of sales. Apple measures inventories using the first-in, first-out method. General Motors also determines cost on a FIFO basis.

What is LIFO?

Last-in, first-out: the most recent costs are charged to cost of sales. Caterpillar principally uses LIFO and said that method covered about 70 percent of total inventories at December 31, 2025. Costco uses a LIFO basis for merchandise inventories.

Which method produces higher earnings when prices are rising?

Usually FIFO, because older, lower costs flow through cost of sales. LIFO charges the newer, higher costs and typically reports a lower inventory balance. The relationship reverses if prices are falling.

Why do some 10-Ks show a FIFO comparison?

U.S. GAAP asks LIFO users to disclose what inventory would have been under FIFO (or current cost). That figure helps a reader compare a LIFO company with a FIFO peer.

Is this the same as inventory turnover?

No. Turnover is how quickly inventory is sold. The costing method is how a cost is assigned to that inventory and to cost of sales. Both appear in the inventory note.

Disclosures

Editor holdings: The editor holds no position in any company named on this page. As of Nov 11, 2026.
Compensation: Nobody paid for this page. No affiliate links on this page.
Sources: Each company's own SEC filings, linked next to each number.
Last updated: Nov 10, 2026

General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.

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