LIFO, or “last in, first out,” is the inventory method that assumes the newest stock is sold first.
Under this cost-flow assumption, the latest units purchased or produced are matched against current sales before older units. It is an accounting convention about which costs are assigned to goods sold; it does not necessarily describe the physical movement of products in a warehouse. Many goods, especially food and items with expiration dates, are physically handled using FIFO even when an accounting system uses another method.
LIFO is commonly contrasted with FIFO, “first in, first out,” and with specific identification, which assigns the actual cost of individually identifiable items. Weighted average instead blends inventory costs into an average unit cost. These methods can produce different reported costs, profits, and ending-inventory values when prices change.
LIFO has also been controversial because it can reduce taxable income during periods of rising prices by assigning newer, higher costs to sales. Its availability depends on the accounting rules and jurisdiction being used, so a business’s permitted method is not simply a warehouse preference.