The LIFO cost flow assumption assumes that the cost of items purchased latest are the costs that will be transferred first to cost of goods sold on the income statement.
LIFO means last in, first out. It means that it is the inventory purchased last that is assumed to be sold first. The cost of goods sold that would be recorded on the income statement is the cost of the latest purchased inventory. Ending inventory that would be recorded in the balance sheet is the earliest purchased inventory.
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