Last in, first out (LIFO)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is last in, first out (LIFO)?
Last in, first out (LIFO) is an inventory accounting method that assumes the newest stock is sold first, so cost of goods sold reflects the latest costs. It is allowed under US accounting rules (GAAP) but not under International Financial Reporting Standards (IFRS).
How it works
Companies choose LIFO mainly because, when costs rise, it raises reported cost of goods sold and lowers taxable income. LIFO is only an accounting assumption: the warehouse still ships the oldest stock first.
Last in, first out (LIFO) example
A distributor buys 100 units at $10, then 100 more at $12, and sells 100. Cost of goods sold is $1,200 under LIFO and $1,000 under FIFO.
Related terms
- First in, first out (FIFO)First in, first out (FIFO) is an inventory method that assumes the oldest stock is sold first.
- Cost of goods sold (COGS)Cost of goods sold (COGS) is the cost of the products a company sold during a period.
- Replacement costReplacement cost is what it would cost a distributor to buy an item again today, as opposed to what it paid for the stock already on its shelf.
