FIFO (First-In, First-Out)

Concept

FIFO Explained

Under FIFO, the oldest inventory costs are assigned to Cost of Goods Sold first. The most recent costs remain in ending inventory. Think of it like a grocery store — oldest milk sells first.

Example

FIFO Calculation

A company has: 100 units @ $10 (beginning), 200 units @ $12 (purchase). It sells 150 units. COGS: 100 units × $10 = $1,000 + 50 units × $12 = $600 → Total COGS = $1,600. Ending inventory: 150 units × $12 = $1,800.

Key Point

FIFO Effects

In a period of rising prices, FIFO produces: LOWER COGS, HIGHER net income, and HIGHER ending inventory on the balance sheet. FIFO ending inventory closely approximates current replacement cost.

Inventory Basics & Systems

LIFO (Last-In, First-Out)

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Practice questions from this module to reinforce what you learned.

Practice Questions