In business accounting, the inventory method that assumes the newest goods are sold first is LIFO, meaning “last in, first out.”
Under LIFO, the latest inventory costs are assigned to the cost of goods sold first, while older costs remain associated with ending inventory. When prices rise, this often produces a higher cost of goods sold and lower reported profit than FIFO, because newer purchases usually cost more.
LIFO is a cost-flow assumption rather than a claim that a warehouse physically sells items in reverse order. Companies can use the method for accounting even when their physical handling follows another pattern. It is most relevant to interchangeable goods, such as fuel, commodities, or standard parts.
LIFO is permitted under U.S. generally accepted accounting principles but prohibited by International Financial Reporting Standards. FIFO, by contrast, assumes the oldest costs are sold first. Weighted-average costing blends inventory costs instead of assigning the newest or oldest costs first.