Dictionary of Accounting Terms: Next-In, First-Out (NIFO)
Next-In, First-Out (NIFO)
inventory valuation method whereby the cost of sale of the item is based on the cost to replace it rather than on historical cost. For example, an item costing $10 with a replacement cost of $12 is sold for $20. Under NIFO, gross profit is $8 ($20 minus $12). This method is not GAAP. However, during inflationary periods a company may want to price ahead of inflation by establishing its selling price on a replacement-cost basis and would thus use NIFO as a basis for pricing.
