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.

  1. Financial Statements

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

    A cash basis accounting cost recognition process that classifies ...
  3. Historical Cost

    A measure of value used in accounting in which the price of an ...
  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. Encumbrance

    A claim against a property by a party that is not the owner. ...
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. Economics

    Explaining Appreciation

    Appreciation refers to an increase over time in the value of an investment or asset.
  7. Economics

    Calculating Long-Term Debt to Total Assets Ratio

    A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt.
  8. Economics

    Explaining Like-for-Like Sales

    Companies use like-for-like sales figures to compare sales volume from one period to another.
  9. Investing

    How Worried Should We Be About China?

    An economic slowdown, a freezing up in trade and plunging markets and currencies are casting a shadow across Asia—and the globe. How worried should we be?
  10. Professionals

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  1. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>
  2. Do prepayments provide working capital?

    Prepayments, or prepaid expenses, are typically included in the current assets on a company's balance sheet, as they represent ... Read Full Answer >>
  3. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  4. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  5. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  6. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!