Next-In, First-Out - NIFO

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.

BREAKING DOWN '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. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Average Cost Basis Method

    A system of calculating the cost basis on mutual fund positions ...
  3. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  4. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  5. Full Costing

    A managerial accounting method that describes when all fixed ...
  6. Direct Cost

    A price that can be completely attributed to the production of ...
Related Articles
  1. Investing

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  2. Markets

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  3. Managing Wealth

    Cost Basis Basics

    The term "cost basis" refers to the original value of a security you own. When you sell a stock, bond or mutual fund, you use the cost basis to determine your profit or loss, which in turn affects ...
  4. Investing

    GAAP

    Learn more about the generally accepted accounting principles, standards and procedures that companies use to compile their financial statements.
  5. Managing Wealth

    What Determines Your Cost Basis?

    In any transaction between a buyer and seller, the initial price paid in an exchange for a product or service will qualify as the cost basis. When it comes to securities and related financial ...
  6. Investing

    How To Choose The Best Stock Valuation Method

    There is no single valuation tactic that works in every situation. But a company’s characteristics provide clues to investors about the best method to use.
  7. Entrepreneurship & Small Business

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  8. Investing

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  9. Investing

    Financial Statement: Extraordinary Vs. Nonrecurring Items

    When it comes to analyzing a company, successful analysts spend considerable time differentiating between accounting items that are likely to recur going forward from those that most likely will ...
  10. Investing

    Explaining Replacement Cost

    The replacement cost is the cost you’d have to pay to replace an asset with a similar asset at the present time and value.
RELATED FAQS
  1. What are some of the basic Generally Accepted Accounting Principles?

    Learn more about generally accepted accounting principles determined by the Financial Accounting Standards Board, including ... Read Answer >>
  2. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
  3. What is the difference between cost and price?

    Consider how cost affects a product's price. Corporate expenses and the current cost of living both impact the final sticker ... Read Answer >>
  4. What are the main objectives of cost accounting?

    Learn about the main benefits of cost accounting systems, why they are different from financial accounting and why they are ... Read Answer >>
  5. What are the main methods for calculating business costs?

    See why different economic actors use different methods for calculating costs, and learn how different methods can impact ... Read Answer >>
  6. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center