Last In, First Out

Last In, First Out

About Last In, First Out:

Last In, First Out (LIFO) is a method of inventory whereby the most recent items acquired are considered the first ones sold. Items in inventory at the end of the year are treated as though they had been in the opening inventory, plus or minus acquisitions.

during the year as needed to make up the correct total. LIFO offers a lower amount of income during a period of rising inventory prices but the taxpayer must also use LIFO for financial statement purposes. IRC (check if this IRC provision is current here) §472. Contrast first in, first out.

Example of Last In, First Out:

Learn more about tax examples, explanations and calculations here.

The Solid Rock Concrete Company began business on January 1, 1994. The company purchased and sold carloads of sand as follows:

Purchase: January 10, 1994, 50 carloads at $10 each.

Purchase: January 20, 1994, 75 carloads at $12 each.

Sale: January 30, 1994, 71 carloads.

Under LIFO, the inventory of 54 carloads remaining on January 31, 1994, consists of 50 bought at $10 and 4 bought at $12. The cost of sales in January 1994 reflects 71 units bought for $12 each. See: LIFO.


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