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What is LIFO in inventory accounting?

LIFO stands for “last in, first out”. Under the LIFO method, the last items purchased by the company are the first items sold to the end customer. This method is most commonly used when there little risk of spoilage or obsolescence.

As you can see in the visual below, batch #4 would have been the latest batch purchased, but also represents the first items sold. As you can see in the visual below, items in batch #3 were the last items purchased but also the first items sold and would be part of cost of goods sold and not ending inventory.

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