LIFO — Last In First Out

LIFO (Last In First Out) is a method where the most recently stored goods are removed or valued first. LIFO exists in two senses: as a physical removal principle in the warehouse and — far more commonly — as an inventory valuation method in accounting. It is the counterpart to FIFO (First In First Out).

LIFO as a physical stock principle

Physically, LIFO is rarely chosen deliberately because it causes losses with perishable goods. It arises inevitably with certain storage forms:

Bulk goods and heaps: gravel, coal, sand — piled on top, taken from the top
Block storage loaded from one side: the last pallet stored stands at the front

For food or pharma, LIFO is physically unsuitable — there FEFO (earliest expiry first) applies.

LIFO as an accounting valuation method

LIFO's main use is inventory valuation. It assumes that the most recently purchased (and, in times of rising prices, most expensive) stock is consumed first. The effect: in inflationary periods LIFO reports a lower profit and thus a lower tax burden.

German GAAP (HGB): LIFO is permitted under certain conditions
IFRS: LIFO is not allowed for valuation — internationally FIFO and the weighted-average method dominate

LIFO, FIFO and FEFO

Method	Principle	Typical use
FIFO	oldest goods first	physical standard
LIFO	newest goods first	bulk goods, accounting valuation (HGB)
FEFO	earliest expiry date first	food, pharma

In the ERP, the physical removal principle and the accounting valuation are configured separately — see perpetual inventory.

Frequently Asked Questions

What does LIFO mean?

LIFO stands for Last In First Out — the most recently stored goods are removed or valued first. It is the opposite of FIFO (oldest first) and appears mainly in inventory valuation.

Is LIFO allowed in Germany?

For accounting, LIFO is permitted under German GAAP (HGB) under certain conditions. Under IFRS, LIFO is not allowed for valuation — only FIFO and the weighted-average method are.

Why do companies use LIFO for valuation?

In times of rising prices, LIFO assumes consumption of the most expensive (most recently purchased) stock. This lowers reported profit and thus the tax burden — an accounting-policy advantage during inflation.

What is the difference between LIFO and FIFO?

FIFO removes or values the oldest goods first, LIFO the newest. Physically FIFO is the standard; LIFO is physically rare and mainly an accounting valuation method under HGB.

Can an ERP combine LIFO and FIFO?

Yes. ERP systems separate the physical removal principle from the accounting valuation. The warehouse may ship by FIFO while finance values inventory by LIFO.