What Is Last In, First Out (LIFO)?

By Kristi Waterworth – Updated Feb 25, 2025 at 10:34 PM EST

Key Points

LIFO assumes the last item added to inventory is sold first, affecting reported profits.
LIFO can reduce taxable income by accounting for recent, higher costs.
Investors should examine LIFO use, as it may distort a company's financial health.

If you invest in companies that manufacture goods, or that maintain significant inventories, knowing just how the accountants deal with that inventory is vital. Last in, first out is one accounting method you should be familiar with.

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GAAP vs. Non-GAAP: Everything You Need to Know

Public companies must use generally accepted accounting principles but also at times do their own thing.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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