LIFO
Definition
Noun: 1. An inventory accounting method: LIFO is an acronym for "Last In, First Out." It is an accounting principle where the most recently acquired or produced inventory items are recorded as the first ones sold. This method affects the cost of goods sold and ending inventory valuation on financial statements.
Usage
LIFO is used primarily in accounting and financial contexts to describe a specific inventory valuation method. - The company uses the LIFO method for its inventory accounting, which impacts its reported profits during periods of inflation. - Under LIFO, the cost of goods sold reflects the cost of the most recent inventory purchases.
Advanced Usage
- LIFO Reserve: In financial reporting, the LIFO reserve is the difference between the inventory value calculated under the LIFO method and the value it would have if calculated under the FIFO (First In, First Out) method. This figure is often disclosed in financial statement notes.
- Analysts examined the LIFO reserve to adjust the company's inventory valuation for comparative purposes.
Variants and Related Words
- FIFO (First In, First Out): The contrasting inventory accounting method where the oldest inventory items are assumed to be sold first.
- Inventory Accounting: The broader field concerning how a company values its inventory.
Synonyms
- Last In, First Out (The spelled-out form of the acronym).
Related Phrases
- LIFO Conformity Rule: A U.S. tax rule that requires companies using LIFO for tax reporting to also use it in their financial statements.
- Due to the LIFO conformity rule, the company's financial and tax reporting use the same inventory method.
Noun
-
inventory accounting in which the most recently acquired items are assumed to be the first sold
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