# Last-In-First-Out (LIFO)

Posted in Finance, Accounting and Economics Terms, Total Reads: 1435

## Definition: Last-In-First-Out (LIFO)

LIFO is an inventory accounting method which has been recognized by the Internal Revenue Code since 1939.

This method is created under the assumption that you sold the new stuff as soon as you purchased it

LIFO implies that the items which has been recently purchased will be sold first. Cost of goods sold is calculated by using latest prices, while ending inventory is calculated using the oldest prices.

Business with inflating inventory costs like LIFO.

Example:

X runs a Candy shop. He enters into the following transactions during July:

July 1 Purchases 1,000 candy at Rs.1 each.
July 10 Purchases 800 candy at Rs.1.20 each.
July 15 Sells 600 candy at Rs.2 each.

Number of candies at the end of the month?

1,000 + 800 – 600 = 1,200 candies

 Date Details Number Rs/unit Value(Rs.) Jul-01 Purchases 1,000 candy at Rs.1 each 1000 1 1000 Jul-10 Purchases 800 candy at Rs.1.20 each 800 1.2 960 1800 1960 Jul-15 Sells 600 candy at Rs.2 each 600 2 1200 Balance 1200 1360 Sales 600 2 1200 Cost of Goods Sold 600 1 600 Profit 600

As you can see, even though the purchases amounted to Rs.1,200, the cost of goods sold (or cost of sales) amounted to Rs.600.

Hence, this concludes the definition of Last-In-First-Out (LIFO) along with its overview.

Browse the definition and meaning of more terms similar to Last-In-First-Out (LIFO). The Management Dictionary covers over 7000 business concepts from 6 categories.

Search & Explore : Management Dictionary

Similar Definitions from same Category: