Highest In, First Out - HIFO

AAA

DEFINITION of 'Highest In, First Out - HIFO'

In accounting, an inventory distribution method in which the inventory with the highest cost of purchase is the first to be used or taken out of stock. This will impact the company's books such that for any given period of time, the inventory expense will be the highest possible.

INVESTOPEDIA EXPLAINS 'Highest In, First Out - HIFO'

Companies would likely choose to use the HIFO inventory method if they wanted to decrease their taxable income for a period of time. Because the inventory that is recorded as used up is always the most expensive inventory the company has (regardless of when the inventory was purchased), the company will always be recording maximum cost of goods sold.

Contrast this with other inventory recognition methods such as last in, first out (LIFO), in which the most recently purchased inventory is recorded as used first, or first in, first out (FIFO), in which the oldest inventory is recorded as used first. Companies may occasionally change their inventory methods in order to smooth their financial performance.

RELATED TERMS
  1. Specific Identification Inventory ...

    A method of keeping track of all items in an inventory. Specific ...
  2. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  3. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
  4. Contribution Margin

    A cost accounting concept that allows a company to determine ...
  5. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  6. Inventory

    The raw materials, work-in-process goods and completely finished ...
Related Articles
  1. Working Capital Works
    Insurance

    Working Capital Works

  2. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  3. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  4. Active ETFs: Higher Cost Vs. Added Value
    Mutual Funds & ETFs

    Active ETFs: Higher Cost Vs. Added Value

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center