LIFO and FIFO are two inventory valuation methods. LIFO (Last-In, First-Out) assumes that the most recent items added to inventory are sold first. FIFO (First-In, First-Out) assumes that the oldest items in inventory are sold first. LIFO and FIFO are commonly used in cost accounting, financial analysis, and tax reporting for companies to value their inventory and cost of goods sold. The method used can affect the reported earnings and tax liability of a company.