Last in First out LIFO definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Last in First out LIFO can be defined as: Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold. Last in first out LIFO is an inventory assumption method similar to first in first out FIFO or an average inventory method. Last in first out LIFO does not specifically identify the cost of the inventory that is sold. LIFO makes an assumption that the last unit purchased is the first unit sold. The last in first out LIFO inventory assumption can seem counter intuitive because most would assume that we would try to have an inventory cost flow closer to first in first out or FIFO trying to sell the oldest inventory first. In a period of rising prices, a normal period, a last in first out LIFO method will result in a lower net income then a first in first out FIFO method.
