LIFO (Last-In, First-Out)

Concept

LIFO Explained

Under LIFO, the most recent inventory costs are assigned to Cost of Goods Sold first. The oldest costs remain in ending inventory. LIFO is allowed under U.S. GAAP but NOT under IFRS.

Example

LIFO Calculation

Same data: 100 units @ $10, 200 units @ $12. Sell 150 units. COGS: 150 units × $12 = $1,800 (newest costs first, and we have enough at $12). Ending inventory: 100 units × $10 + 50 units × $12 = $1,600.

Key Point

LIFO Effects

In rising prices, LIFO produces: HIGHER COGS, LOWER net income, and LOWER ending inventory. Companies may choose LIFO for the tax benefit — lower income means lower taxes.

FIFO (First-In, First-Out)

Weighted Average Cost

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Practice questions from this module to reinforce what you learned.

Practice Questions