FIFO assigns the earliest available inventory costs to expense first. It is a cost-flow assumption. It does not prove that the oldest physical carton, component, or finished unit left first. Warehouse evidence answers that physical-flow question.
Assume 80 units at $9 and 50 at $11 are available before a 100-unit sale. FIFO assigns $940 to cost of goods sold: all $720 of the first layer and $220 from the second. The remaining layer contains 30 units at $11. Continue the schedule by date and never consume a cost that was unavailable when a perpetual sale occurred.
Periodic FIFO applies the total period's removals against the earliest costs in goods available. Perpetual FIFO removes the earliest available costs at each sale. For an ordinary ordered stream, both often leave the same ending layers. Their agreement verifies execution under the supplied facts. It does not validate quantities, cost eligibility, dates, ownership, or method approval.
Compare FIFO with LIFO
LIFO reverses the cost-layer direction. FIFO sends the earliest available costs to expense and leaves recent costs in inventory. LIFO sends the latest available costs to expense and can leave older layers in inventory. Neither method establishes which physical unit moved.
Under rising unit costs and otherwise identical facts, FIFO will usually report lower cost of goods sold and higher ending inventory than LIFO. That direction is conditional on the cost stream, quantities, dates, and inventory system. Recompute the schedules instead of treating it as a rule for every fact pattern.
ASC 330-10-30-9 lists FIFO among the cost-flow assumptions and says method selection should clearly reflect periodic income under the circumstances. The official IAS 2 overview also identifies FIFO for ordinarily interchangeable items. These sources support a cost assignment, not a claim about warehouse movement.
The Cedar example shows the event trace and both reconciliations. The independent Northstar practice tests whether later purchases remain unavailable to earlier sales.
Put the concept to work
Understand this concept
- Explain FIFO as a cost assignment and distinguish it from a claim that the oldest physical unit always ships first.
Apply this concept
- Compute periodic and perpetual FIFO cost of goods sold and ending inventory from dated units and costs and reconcile both to goods available.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- FIFO cost flow — Understand
To apply this concept: Required. The cost-flow rule precedes the schedule.
- Inventory cost layer — Understand
To understand this concept: Required. FIFO consumes ordered cost layers.
Lessons
Worked examples and cases
- Build Cedar's LIFO schedules and bounded comparison
- Close Cedar Trail's inventory without pricing the wrong goods
- Price Cedar Trail's layers, measurement adjustments, and inventory estimates
Show 1 more examples and cases
Practice
Common mistaken ideas
Sources
Broader topics
Related concepts
Show 1 more related concepts
Use this idea next
- FIFO cost flow — Apply
Required level here: understand. Required. The cost-flow rule precedes the schedule.