LIFO stands for "Last In, First Out," a method used in inventory management and accounting. Under this system, the most recently added items to inventory are the first ones to be sold or used. This approach is often applied in industries where products have a limited shelf life or where prices fluctuate frequently. In accounting, LIFO can affect financial statements and tax calculations. When prices rise, using LIFO can result in lower taxable income since the cost of goods sold reflects the higher prices of the latest inventory. This method contrasts with FIFO (First In, First Out), where the oldest items are sold first.