Next-In, First-Out - NIFO

AAA

DEFINITION of 'Next-In, First-Out - NIFO'

A method of valuation where the cost of a particular item is based upon the cost to replace the item rather than on it's original cost. This form of valuation is not one of the generally accepted accounting principles (GAAP) because it is said to violate the cost principle. The cost principle is an accounting concept that states that goods and services should be recorded at their original cost, not present market value.

INVESTOPEDIA EXPLAINS 'Next-In, First-Out - NIFO'

For example, an item that originally cost $15, and has a replacement cost of $18, is sold for $28. With the NIFO valuation method, gross profit would be $10 ($28 minus $18), not $13. Some companies use this method during times when inflation is a factor. Companies will set a selling price on replacement-cost basis and use this method as a way to price the items it sells.

RELATED TERMS
  1. Financial Statements

    Records that outline the financial activities of a business, ...
  2. Historical Cost

    A measure of value used in accounting in which the price of an ...
  3. Cash Cost

    A cash basis accounting cost recognition process that classifies ...
  4. Accounting Method

    The method by which income and expenses are reported for taxation ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
Related Articles
  1. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  2. Fundamental Analysis

    The One-Time Expense Warning

    These income statement red flags may not spell a company's downfall. Learn why here.
  3. Investing Basics

    The Flow Of Company Information

    Learn how to gather all the pieces before you start to put together your puzzle.
  4. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  5. Investing

    The Ins and Outs Of In-Process R&D Expenses

    Are these charge-offs fair accounting or earnings manipulation? Learn more here.
  6. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  7. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  8. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  9. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  10. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center