LIFO, or Last In, First Out, is an inventory accounting method where the most recently purchased inventory items are sold first. For ecommerce businesses, this means that the latest stock acquired is the first to be shipped out. LIFO can be beneficial in certain economic environments, particularly when prices are rising, as it helps match the most recent costs with current revenue.
For ecommerce businesses, LIFO can result in lower taxable income during periods of inflation, as it reports higher costs of goods sold due to the use of more expensive inventory. However, it is less commonly used due to its potential for distorting the true value of inventory, especially for companies with long shelf-life products. In fact, LIFO is not allowed under International Financial Reporting Standards (IFRS), although it is permissible under U.S. Generally Accepted Accounting Principles (GAAP).
Read our in-depth article about Last In, First Out.