LIFO Method

The LIFO (Last-In, First-Out) method assumes that the most recent inventory items purchased are sold first. This means that when calculating costs or profits, the newest stock is used up before the older stock. For example, if a company stocks various batches of a product, LIFO considers the latest batch as sold first, leaving the older inventory on hand. This method affects financial statements, especially in times of inflation, as it can result in higher cost of goods sold and lower taxable income, reflecting recent purchase costs more accurately.