Last In, First Out - LIFO

What is 'Last In, First Out - LIFO'

Last in, first out (LIFO) is an asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.

BREAKING DOWN 'Last In, First Out - LIFO'

LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.

RELATED TERMS
  1. LIFO Liquidation

    When a company using the LIFO (Last In, First Out) method of ...
  2. LIFO Reserve

    The difference between the FIFO and LIFO cost of inventory for ...
  3. Dollar-Value LIFO

    An accounting method used for inventory that follows the last ...
  4. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  5. Lot Relief Method

    A method of computing the cost basis of an asset that is sold ...
  6. Flow Of Costs

    Refers to the manner in which costs move through a firm. Typically, ...
Related Articles
  1. Fundamental Analysis

    Inventory: FIFO, LIFO

    Whether a company chooses FIFO or LIFO has important implications for the bottom line and for tax liability.
  2. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS (XOM)

    We explain why Last-In-First-Out is banned under IFRS
  3. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  4. Professionals

    Converting FIFO to LIFO

    CFA Level 1 - Converting FIFO to LIFO. Learn how to both FIFO and the average-cost method to LIFO. Provides formulas showing how both conversions affects COGS.
  5. Professionals

    Causes of Decline in LIFO Reserve

    CFA Level 1 - Causes of Decline in LIFO Reserve. Learn why a company's LIFO reserves might decline. Describes "LIFO liquidation" and its effects on profitability and COGS.
  6. Professionals

    LIFO and FIFO Valuation of Inventory

    LIFO and FIFO Valuation of Inventory
  7. Professionals

    Inventory Analysis

    CFA Level 1 - Inventory Analysis. Learn how to calculate ending inventory balances and how unstable price environments cause costing methods to yield different results.
  8. Professionals

    Converting LIFO to FIFO

    CFA Level 1 - Converting LIFO to FIFO. This topic covers various methods of converting LIFO to FIFO. Includes sample calculations for simple and complex conversions.
  9. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  10. Professionals

    Inventory Valuation and Flow Methods

    Inventory Valuation and Flow Methods
RELATED FAQS
  1. What are the business consequences of using FIFO vs. LIFO accounting methods?

    Learn about the real business consequences from using a first-in, first out inventory accounting method versus a last-in, ... Read Answer >>
  2. Does US GAAP prefer FIFO or LIFO accounting?

    Investigate the use of LIFO and FIFO inventory accounting methods under U.S. GAAP, and learn why there is pressure from some ... Read Answer >>
  3. If during a period of rising prices, a LIFO liquidation occurs ...

    The correct answer is: b) Remember that LIFO transmits the latest prices of inventory over to cost. Therefore, what's left ... Read Answer >>
  4. What's the difference between weighted average accounting and FIFO/LILO accounting ...

    The main difference between weighted average cost accounting, LIFO, and FIFO methods of accounting is the difference in which ... Read Answer >>
  5. What are the disadvantages of the FIFO accounting method?

    Learn how the FIFO accounting method differs from the LIFO method and the primary disadvantages for a company using the FIFO ... Read Answer >>
  6. How does inventory accounting differ between GAAP and IFRS?

    Learn about inventory costing differences between generally accepted accounting principles, or GAAP, and International Financial ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center