In short
First-in, first-out (FIFO) is an inventory cost flow assumption that the oldest goods are sold first, so ending inventory reflects the most recent purchase costs.
Key takeaways
- When prices rise, it gives a lower cost of goods sold and higher income and inventory than last-in, first-out (LIFO).
- Periodic and perpetual systems give the same ending inventory under it.
- It is measured at the lower of cost and net realizable value.
Example
100 units bought at $10, then 100 at $12; 150 sold: cost of goods sold is $1,000 + $600 = $1,600 and ending inventory 50 × $12 = $600.
Where it's tested
FAR: Inventory — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company uses LIFO for both tax and financial reporting. During a period of rising prices, which of the following is true relative to FIFO?