With Last In, First Out (LIFO), the most recently acquired product is the first sold. It also includes an asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold, or disposed of first. LIFO assumes that an entity sells, uses, or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.
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