what is next in first out nifo 
next in first out nifo is a method of valuing inventory where the cost of an item is based upon its replacement cost rather than its original cost the next in first out form of valuation does not conform to generally accepted accounting principles gaap 1 this is because nifo is said to violate the cost principle accounting concept which states that goods and services should be recorded at original cost not present market value understanding next in first out nifo some companies use next in first out when inflation is a factor companies will set a selling price on a replacement cost basis and use this method as a way to price the items it sells although nifo doesn t conform to gaap many economists and business managers prefer the economic rationale behind the method as a cost flow assumption technique by stating that the cost assigned to a product is the cost required to replace it nifo can offer a more practical valuation method businesses will actually see during normal operations for example the traditional methods of last in first out lifo and first in first out fifo can become distorted during inflationary periods using accounting methods based on these principles during inflationary environments can mislead business managers hence many businesses will use nifo for internal purposes during these periods and report results using lifo or fifo on their audited financial statements example of next in first out nifo suppose a company sells a toy widget for 100 the original cost of the widget was 47 which would result in a reported profit of 53 at the time of the sale the replacement cost of the widget was 63 if the company were to charge 63 for the cost of goods sold under the nifo concept the reported profit would decline to 37 