Last-In, First-Out (LIFO) is an inventory management method where the most recently added items are the first to be sold or used. This approach is commonly used in industries where products have a limited shelf life or are subject to rapid changes in demand. By selling the latest inventory first, businesses can minimize losses from unsold goods. In accounting, LIFO affects how companies report their inventory costs and profits. When prices rise, using LIFO can result in lower taxable income since the cost of goods sold reflects the higher prices of newer inventory. This method contrasts with First-In, First-Out (FIFO), where older inventory is sold first.