Why, you might wonder, is this blog venturing into the area of Accounting this week?
Well, I was standing in front of my freezer the other day, pondering which of my hoarded frozen items I should defrost for dinner, and started to wonder about just how old some of those items in the back corner were. Which led to mental waffling about whether I should eat those as they were the oldest and most likely to have deteriorated, or just leave them there in case of future pandemic-related supermarket stockouts (when I’d be happy to have any food, no matter how deteriorated it was) and eat something that I knew had gone in recently. At this point, my MBA education kicked in and I thought, “well isn’t this a classic LIFO/FIFO situation”? and had a good chuckle. Yes, I know, lame.
But, I realized that this situation is actually a great way to explain the concept to non-accountant types (e.g. the vast majority of us).
LIFO vs FIFO is an fancy sounding accounting principle having to do with inventory. The basic principle is fairly simple and pretty much explained by deciphering the acronyms: LIFO is “Last In First Out” and FIFO is “First In First Out”. So, in this example, when you pass over the boneless chicken breasts you bought last April that are languishing in the dark recesses of your freezer while you pull out the Chicken Tikka Masala you bought last week at Trader Joe’s, you are practicing LIFO. If you are rotating your freezer stock and using the meatballs you bought four months ago before the frozen shrimp you bought two weeks ago, you are practicing FIFO.
Simple now, right? So go ahead and impress your friends by casually dropping these terms into the conversation when you’re next discussing the contents of your freezer on your next group Zoom. Say something like, “I really should be using a FIFO system in my freezer, but I just get lazy and pull out whatever’s in front” and they’ll nod and smile and have absolutely no idea what you just said.
Who’s the smart one now?
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