FIFO
(First In, First Out)
The FIFO (first in, first Out) method is similar to LIFO (last in, first
out) and keeps track of the price you paid for each group of units you
receive at the same time at the same unit cost. However, FIFO costs your
sales and values your inventory as if the items you sell are the ones
that you have had in stock for the longest time. Select FIFO when you
charge costs against revenue in the order in which costs occur. (FIFO
generally yields the highest possible amount of net income during periods
of constantly rising costs because costs increase regardless of the fact
you can receive merchandise prior to the cost increase. In periods of
declining cost, the effect is reversed.)
Example-FIFO
You received three different shipments for WIDGET01. The cost is then:
You sold 15 units:
10 units costed at $10.00 each = $100.00
5 units costed at $12.00 each = $60.00
Total Cost = $160.00
The next WIDGET you sell will post a cost of goods sold of $10.00 (the
price of the first item purchased).