LIFO (last-in-first-out)
A costing rule that charges the most recent purchase price against a sale first. It is not permitted for inventory valuation under Indian accounting standards.
LIFO means the most recent purchase is treated as the first one sold. In a rising market that pushes a higher cost against today's sale and leaves the older, cheaper stock on your balance sheet.
The important point for an Indian business
Indian accounting standards do not allow LIFO for valuing inventory. Businesses here use FIFO or weighted average cost. If a supplier's software or an old spreadsheet is calculating on LIFO, your closing stock figure will not stand up to your auditor.
Why you still hear the term
LIFO is common in American writing and in international textbooks, so it turns up in imported software settings and in advice written for another market. Knowing what it is saves you from picking it by accident from a dropdown.
What to use instead
Pick FIFO if you want your valuation to follow recent prices and your goods age. Pick weighted average cost if you buy the same item repeatedly at different rates and want one blended cost. Whichever you choose, apply it consistently — changing the method between years distorts your profit and needs disclosure.
A common mistake
Confusing the picking rule with the costing rule. Sending the newest carton out of the godown first is a warehouse habit, not LIFO accounting. Fix the habit; do not change the valuation method to match it.