What does LIFO stand for in inventory management?

LIFO stands for "Last In, First Out," which is a method of inventory management where the most recently acquired items are the first to be sold or used. This approach assumes that the latest inventory costs are the ones that impact financial statements first, which can have significant implications for financial reporting and tax calculations, especially during periods of inflation when prices are rising.

Using LIFO can lead to lower taxable income in an inflationary environment because the higher costs associated with the most recent purchases are matched against current revenues. This also affects how a business evaluates its inventory, as older inventory remains on the books, potentially reflecting lower historical costs.

While other options present alternative phrasing for inventory methods, they do not correctly capture the meaning or application of LIFO within inventory management, which is critical for financial analysis and operational decision-making.