An inventory valuation method where goods purchased or manufactured first are sold or used first, meaning the oldest stock is consumed before newer stock.
FIFO is one of the most common inventory valuation methods used worldwide. Under FIFO, the cost of goods sold reflects the cost of the oldest inventory first. This means ending inventory on the balance sheet reflects the most recent purchase prices. FIFO is generally considered the most logical method as it matches the actual physical flow of goods (especially for perishables). During inflation, FIFO results in higher ending inventory values and higher reported profits compared to LIFO.
A store buys 100 units at ₹50 in January, then 100 units at ₹60 in February. If 120 units are sold, FIFO COGS = (100 × ₹50) + (20 × ₹60) = ₹6,200. Ending inventory = 80 × ₹60 = ₹4,800.
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FIFO sells oldest stock first (lower COGS during inflation = higher profit). LIFO sells newest stock first (higher COGS = lower profit, lower tax). LIFO is banned under IFRS and Indian Accounting Standards but allowed under US GAAP.
Indian Accounting Standards (Ind AS 2) and ICAI guidelines mandate either FIFO or Weighted Average Cost — LIFO is not permitted. FIFO is preferred for perishable goods and when tracking actual stock flow matters.
The direct costs attributable to the production or purchase of goods sold by a company during a specific period.
A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.
The profit a company makes after deducting the cost of goods sold (COGS) from its revenue, before accounting for operating expenses.
A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
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