LIFO Liquidation

It sounds like the title of an EDM album from the early 2000s. Actually, it's an accounting term related to inventory management.

LIFO stands for "Last In, First Out." It's an accounting premise that allows companies to value the inventory they have in stock. Rather than track individual units (like following each individual paper clip made by a paper clip factory), LIFO uses the shorthand assumption that whatever inventory was made most recently (the "last in" to the warehouse) would be the first inventory shipped to customers ("first out," as it were).

The concept stands in contrast to FIFO, which makes the opposite assumption: "first in, first out."

A LIFO liquidation happens when the company sells its older inventory. LIFO essentially assumes that whatever's left in the warehouse is the oldest inventory there. Of course, this assumption isn't literally true. It's just an accounting presupposition. The concept involves a simplified version of reality, convenient to make life easier, along the lines of "my romantic partner never loved anyone before they met me."

LIFO liquidation comes into play when a company has to dip into its inventory stores.

In this particular quarter, you made 100,000 boxes of paper clips, but sold 150,000 boxes of paper clips. That means 50,000 of the boxes you sold were old ones that were sitting around in the warehouse. When you do your books for the quarter, you'll have to account for those 50,000 boxes using LIFO liquidation.