# What accounts for the difference in inventory values between periodic LIFO and perpetual LIFO?

Author:
Harold Averkamp, CPA, MBA

## Difference Between Periodic LIFO and Perpetual LIFO

The difference between periodic LIFO and perpetual LIFO involves the time at which the latest inventory costs are removed from the inventory account:

• With periodic LIFO, the latest costs are assumed to be removed from inventory at the end of the accounting year
• With perpetual LIFO the latest costs are removed from inventory at the time of each sale.

## Example of Difference Between Periodic LIFO and Perpetual LIFO

Assume that a company’s accounting year is January 1 through December 31 and the company sells only one type of product. In its beginning inventory are 2 units with a cost of \$10 each. The company sells 1 unit on March 1. On April 1, the company purchases 5 units at a cost of \$11 each. On September 1, the company sells 3 units. In summary, the company had 2 units on January 1, purchased 5 units on April 1, sold 4 units during the year, and has 3 units on hand at December 31.

With periodic LIFO the costs of the latest purchases starting with the end of the year are removed first. Since 4 units were sold during the year, the costs removed from inventory and charged to the cost of goods sold will be the last cost of 4 units, which is \$11 each. This means the cost of its December 31 inventory using periodic LIFO will be \$31 (1 unit at \$11 plus 2 units at \$10).

With perpetual LIFO the costs of the latest purchases as of the date of each sale are removed first. On March 1, the latest cost at that time for the 1 unit sold was \$10. At the time of the sale on September 1, the latest cost of the 3 units sold was \$11 each. Using perpetual LIFO, the company’s cost of goods sold will be \$43 (1 at \$10 and 3 at \$11), and its inventory will be reported at a cost of \$32 (2 units at \$11 and 1 unit at \$10).

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