First in, first out (FIFO)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is first in, first out (FIFO)?
First in, first out (FIFO) is an inventory method that assumes the oldest stock is sold first. As an accounting method, it values cost of goods sold at the oldest purchase costs; on the warehouse floor, it means shipping older stock before newer stock so nothing ages out.
How it works
When costs are rising, FIFO accounting reports a lower cost of goods sold and a higher profit than LIFO, because the older, cheaper costs are used first. For products with expiration dates, warehouses use first expired, first out (FEFO), covered under lot tracking.
First in, first out (FIFO) example
New pallets of floor finish go behind the existing stock, so pickers keep taking the older cases first.
Related terms
- Last in, first out (LIFO)Last in, first out (LIFO) is an inventory accounting method that assumes the newest stock is sold first, so cost of goods sold reflects the latest costs.
- Lot and serial number trackingLot and serial number tracking is recording which production batch (lot) or which individual unit (serial number) of a product went to which customer.
- Cost of goods sold (COGS)Cost of goods sold (COGS) is the cost of the products a company sold during a period.
- Replacement costReplacement cost is what it would cost a distributor to buy an item again today, as opposed to what it paid for the stock already on its shelf.
