# First-In, First-Out (FIFO) Method

First-In, First-Out (FIFO) is one of the methods commonly used to calculate the value of inventory on hand at the end of an accounting period and the cost of goods sold during the period. This method assumes that inventory purchased or manufactured first is sold first and newer inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and that of newer inventory is assigned to ending inventory. The actual flow of inventory may not exactly match the first-in, first-out pattern.

First-In, First-Out method can be applied in both the periodic inventory system and the perpetual inventory system. The following example illustrates the calculation of ending inventory and cost of goods sold under FIFO method:

## Example

Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system.

### FIFO Perpetual

 Date Purchases Sales Balance Units Unit Cost Total Units Unit Cost Total Units Unit Cost Total Mar 1 68 $15.00$1,020 5 140 $15.50$2,170 68 $15.00$1,020 140 $15.50$2,170 9 68 $15.00$1,020 114 $15.50$1,767 26 $15.50$403 11 40 $16.00$640 114 $15.50$1,767 40 $16.00$640 16 78 $16.50$1,287 114 $15.50$1,767 40 $16.00$640 78 $16.50$1,287 20 114 $15.50$1,767 38 $16.00$608 2 $16.00$32 78 $16.50$1,287 29 38 $16.00$608 54 $16.50$891 24 $16.50$396

Written by Irfanullah Jan