Disposition Methods (also known as Accounting Methods) are set at the tenant level, where all Accounts created will default to the tenant-level-method. Disposition Methods can also be set on Account Creation to override the tenant-level default by setting the optional disposition_method field.

Supported Disposition Methods

HIFO: Highest In, First Out

The Highest In, First Out (HIFO) accounting method is commonly used for calculating the cost basis of assets, especially for tax purposes. It assumes that the highest-priced units or shares are sold first when determining the cost basis of an asset sold or disposed of. Here's an example:

Suppose an investor purchases shares of a stock on three different occasions:

Purchase 1: 10 shares at $10 per share
Purchase 2: 20 shares at $12 per share
Purchase 3: 15 shares at $15 per share

If the investor sells 25 shares, the HIFO method determines the cost basis as follows:

The 15 shares from Purchase 3 would be sold first, with a cost basis of $15 per share.
The remaining 10 shares would be selected from Purchase 2, with a cost basis of $12 per share.

By using HIFO, the investor assigns the highest purchase prices to the shares sold, potentially resulting in a higher cost basis and lower taxable gains.

FIFO: First In, First Out

The First In, First Out (FIFO) accounting method is primarily used in inventory management and the sale of goods. It assumes that the first units or items purchased are the first ones sold or consumed. Here's an example:

Suppose a business purchases a specific product at different prices over time:

Purchase 1: 10 units at $5 per unit
Purchase 2: 20 units at $7 per unit
Purchase 3: 15 units at $9 per unit

If the business sells 25 units, the FIFO method considers the cost basis as follows:

The first 10 units from Purchase 1 would be sold, with a cost basis of $5 per unit.
The remaining 15 units would be selected from Purchase 2, with a cost basis of $7 per unit.

FIFO allocates the cost of the earliest inventory purchases to the units sold, potentially resulting in a different cost basis and inventory valuation.

LIFO: Last In, First Out

The Last In, First Out (LIFO) accounting method is another approach used for calculating the cost basis of assets. It assumes that the most recently purchased or produced units are sold first. Here's an example:

Suppose an investor purchases shares of a stock on three different occasions:

Purchase 1: 10 shares at $10 per share
Purchase 2: 20 shares at $12 per share
Purchase 3: 15 shares at $15 per share

If the investor sells 25 shares, the LIFO method determines the cost basis as follows:

The 15 shares from Purchase 3 would be sold first, with a cost basis of $15 per share.
The remaining 10 shares would be selected from Purchase 2, with a cost basis of $12 per share.

By using LIFO, the investor assigns the most recent purchase prices to the shares sold, potentially resulting in a lower cost basis and higher taxable gains. However, LIFO can be advantageous in periods of rising prices as it matches current costs against current revenues, which can lead to tax deferrals.