LIFO Liquidation

AAA

DEFINITION of 'LIFO Liquidation'

When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their older LIFO inventory. A LIFO liquidation would occur if current sales are higher than current purchases, as a result, any inventory not sold in previous periods must be liquidated.

INVESTOPEDIA EXPLAINS 'LIFO Liquidation'

Due to inflation and general price rises, the amount a company pays for its inventory will usually increase with time. If a company decides to perform a LIFO liquidation, the old costs will be matched with the current higher sales prices. Thus, a cost to using the LIFO liquidation method is higher tax liability if prices have risen since LIFO was adopted. The expected tax advantage of LIFO tunrs into a disadvantage because older, lower costs (of older inventory) are matched with current revenues. Another cost may be lost sales.

RELATED TERMS
  1. Voluntary Liquidation

    A corporate liquidation that has been approved by the shareholders ...
  2. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Inventory

    The raw materials, work-in-process goods and completely finished ...
  5. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  6. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
Related Articles
  1. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  2. Find Investment Quality In The Income ...
    Options & Futures

    Find Investment Quality In The Income ...

  3. Payback Period
    Investing

    Payback Period

  4. What is the average salary for an accountant?
    Personal Finance

    What is the average salary for an accountant?

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center