LIFO is a method used for cost flow assumption purposes in the cost of goods sold calculation. The LIFO method of inventory valuation assumes the most recent products or, "last in" products of a company’s inventory have been used first.
The costs paid for the most recent products purchased are the ones used in the cost of goods sold calculation. In other words, LIFO is the opposite of FIFO. Much like FIFO there is not necessarily a relationship with the actual physical movement of inventory and the accounting assumption. So, why would a company want to use LIFO? Remember, always speak with your accountant or CPA before deciding on a valuation method. They will give you the best advice for your specific needs.
Benefits of LIFO:
Example of LIFO:
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