LIFO or Last In First Out

LIFO or Last In First Out A method of inventory valuation in which the cost of the last items received in the inventory is taken into the cost of the first items sold. Since opening inventory plus purchases during the year minus closing inventory equal cost of goods sold, in an inflationary situation the last costs reflected in the cost of goods sold will show lower gross profits, a higher cost of goods figure and a lower closing inventory. See FIFO.

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