LIFOmenetelmässä

LIFO, which stands for Last-In, First-Out, is an inventory valuation method. Under the LIFO method, the most recently acquired inventory items are assumed to be the first ones sold. This means that the cost of the latest purchases is matched against current revenues. Consequently, the cost of goods sold (COGS) reflects the prices of the most recent inventory acquisitions, while the remaining inventory on hand is valued at the costs of older purchases.

This accounting method is particularly relevant during periods of rising prices. When prices are increasing, LIFO typically results in a higher COGS compared to other methods like FIFO (First-In, First-Out). A higher COGS leads to a lower reported net income, which in turn can result in a lower income tax liability for the company. However, LIFO is not permitted under International Financial Reporting Standards (IFRS). Its use is generally limited to countries that follow U.S. Generally Accepted Accounting Principles (GAAP).

The LIFO method can lead to a "LIFO reserve," which is the difference between the inventory value under LIFO and what it would have been under another method, often FIFO. This reserve can grow significantly over time, especially in inflationary environments. In periods of falling prices, LIFO would result in a lower COGS and a higher reported net income compared to FIFO.