LIFO (Last In, First Out)

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The LIFO (last in, first out) method keeps track of the price you paid for each group of units you receive at the same time at the same unit cost. LIFO (last in, first out) costs your sales and values your inventory as if the items you sell are the ones you have received most recently (and remain unsold).

Select LIFO when you charge the most recent inventory costs against revenue. (LIFO yields the lowest possible amount of net income in periods of constantly rising costs because the cost of the most recently acquired item more closely approximates the replacement cost of the item. In periods of declining costs, the effect is reversed.)

Example-LIFO

You received three different shipments for WIDGET01. The cost is as follows:

You sold 15 units:

10 units costed at $13.00 each = $130.00

5 units costed at $12.00 each = $60.00

Total Cost = $190.00

The next WIDGET you sell will a post a cost of goods sold of $12.00 (the price of the last item purchased).