LIFO is the acronym for: First In, First Out. It is an asset management method that moves the costs of products from inventory to the cost of goods sold. Under LIFO the latest or more recent costs of products purchased (or produced) are the first costs expensed as the cost of goods sold.
Another way of doing this is called FIFO or, First In, First Out where the earliest cost of products purchased are the first costs expensed as the cost of goods sold.
A third way of managing the cost of inventory is called the Average Cost method. And, as its name implies, this spreads the cost of the total inventory purchased at different time periods into a single value.
If the costs of raw materials and components is rising or reducing over time, allocating costs to earlier or later periods is a way of managing product margin.« Back to Glossary Index