Next-In, First-Out - NIFO

Most inventory valuation methods have a name that goes “something-FO.” There are LIFO and FIFO, the most popular versions. And you've got their black-sheep sibling, NIFO.

LIFO and FIFO are ways of determining the cost it took to produce a finished product you have in inventory. The distinction between them relates to when the product was made. But other than that, they're both based on the cost of production.

NIFO (standing for Next In, First Out) takes a different tact. It values inventory based on how much it would take to replace the item. So it's not related to the actual cost of the item you have. It looks at the cost it would take to replace that item, like if you lost it under your couch or let a feral pig eat it. NIFO centers on the market price for the item, rather than the cost you paid.

There's an issue with NIFO. Both LIFO and FIFO are considered acceptable under the GAAP accounting standard, the gold-standard rules for people in the U.S. who care about things like inventory valuation. NIFO does not have GAAP approval (GAAP, by the way, stands for generally accepted accounting principles). So NIFO gets left for the kind of accountant you might meet at a Hell's Angels rally, or at an underground rave at 3 am. The accountants you'd meet in a boardroom during business hours stick to LIFO or FIFO.