Accounting for Inventories - LIFO or FIFO

LIFO = Last in First Out

FIFO = First in First Out

FIFO means that the inventories that are purchased first are the first to be sold.

LIFO means that the inventories that are purchased last are the first units to be sold.

Companies usually shift from FIFO to LIFO to show less taxable income. Since inventories purchased last would cost higher, the net Income ( Revenues - Cost of Goods) would be less and also the taxable income calculated would also be less.