What is Dollar-Value LIFO
Dollar-value LIFO is an accounting method used for inventory that follows the last in, first out model. Dollar-value LIFO uses this approach with all figures in dollar amounts, rather than in inventory units. It provides a different view of the balance sheet than other accounting methods such as first in, first out (FIFO). In an inflationary environment, it can more closely track the dollar value effect of cost of goods sold (COGS) and resulting effect on net income than counting the inventory items in terms of units.
BREAKING DOWN Dollar-Value LIFO
If inflation and other economic factors (such as supply and demand) were not an issue, dollar-value and non-dollar-value accounting methods would have the same results. However, since costs do change over time, the dollar-value LIFO presents the data in a manner that shows an increased cost of goods sold (COGS) when prices are rising, and a resulting lower net income. When prices are decreasing, dollar-value LIFO will show a decreased COGS and a higher net income. Dollar value LIFO can help reduce a company's taxes (assuming prices are rising), but can also show a lower net income on shareholder reports.