Last In, First Out

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Last in, first out (LIFO)

An accounting method that fixes the cost of goods sold to the most recent purchases. Hence, if prices are generally rising, LIFO will lead to lower accounting profitability.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Last In, First Out

In accounting, a technique for valuing inventory by treating inventory acquired most recently as if it were sold first. The sale of inventory is recorded against the purchase price of the most recently acquired inventory, even if the physical goods are not the same. In times of high inflation, the last-in, first out technique reduces a business' inflation risk. It also may reduce one's tax liability. For these reasons, most American firms have used this technique in their accounting since the 1970s.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Last In, First Out (LIFO)

An accounting method for valuing inventories for tax purposes. Under this method, the last items purchased are treated as being the first items sold. Ending inventory is valued using the cost of the items with the earlier purchase dates.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
The LIFO accounting method for inventories was first permitted in the Revenue Act of 1938 and was quickly extended to all taxpayers in the Internal Revenue Code of 1939.
Many firms that experienced significant inventory inflation during the 40 years following World War II failed to adopt LIFO accounting. When surveyed about their reluctance to adopt LIFO, corporate financial officers stated that the adoption of LIFO, and the consequent rise in cash flows and fall in earnings, might lower their stock price.
Further, simplified LIFO also simplifies the LIFO accounting process and allows a company to control its inventory costs better than its competitors.
LIFO accounting requires the company to recognize the higher raw material prices immediately.
The theory goes that LIFO accounting can lead to old inventory hanging on the balance sheet.
tax law requires LIFO accounting for financial reporting purposes, if LIFO is elected for tax purposes.
There's good news for companies seeking practical and cost-effective ways to deal with the difficulties of Lifo accounting. The IRS has proposed changes that would allow simplified Lifo to live up to its name for companies that operate with relatively high and volatile gross margin percentages.
The "problem" occasioned by MSF's impermissible LIFO accounting existed only in those years in which a LIFO increment was created.
"Our employees responded to a very aggressive challenge issued at the beginning of the year to reach a goal of $96 million in pretax earnings before the effects of LIFO accounting. Exclusive of the lawsuit we've achieved our goal and have set a foundation for change at Longs for years to come."
Our Committee on Private Companies (CPC) has been vocal on the potential for IFRS for Private Entities, formerly known as "Small and Medium-Sized Entities, or SMEs;" and our Committee on Taxation (COT) is following the tax implications, particularly in the areas of LIFO accounting and IRS policy and rulemaking.
Before the joint status report was filed, the Federal Circuit decided Kohler Co., 124 F3d 1451 (1997), holding that, for dollar-value LIFO accounting purposes, inventory acquired at a deep discount should be treated as a separate item from that subsequently manufactured or purchased.
Federal Reserve Act permits LIFO accounting. First commercial TV broadcast.