1/21/2014

First-In First-Out (FIFO) Method | Example | Inventory Valuation

Financial Accounting Managerial Accounting Miscellaneous

AccountingExplained

Cash Registers
www.superb.co.za Olivetti Cash Registers PoS Cash Registers
Home > Financial Accounting > Inventories > FIFO Method

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:

Tw eet

Like

154

Financial Accounting
Financial Accounting Intro Accounting Principles Accounting Cycle Financial Statements Subsequent Events Cash and Cash Equivalents Receivables Inventories Perpetual vs Periodic System Perpetual Inventory Periodic Inventory Cash Discount on Inventory Inventory Valuation FIFO Method LIFO Method AVCO Method Retail Method Gross Profit Method LCM Rule Non-Current Assets Investments Revenue Recognition Employee Benefits Lease Accounting Shareholders' Equity Long-term Liabilities Partnership Accounting Business Combinations Financial Ratio Analysis Specialized Ratios
Find us on Facebook

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. Mar 1 5 9 11 16 20 29 Solution Beginning Inventory Purchase Sale Purchase Purchase Sale Sale 68 units @ $15.00 per unit 140 units @ $15.50 per unit 94 units @ $19.00 per unit 40 units @ $16.00 per unit 78 units @ $16.50 per unit 116 units @ $19.50 per unit 62 units @ $21.00 per unit

FIFO Periodic
Units Available for Sale Units Sold Units in Ending Inventory Cost of Goods Sold Sales From Mar 1 Inventory Sales From Mar 5 Purchase Sales From Mar 11 Purchase Sales From Mar 16 Purchase = 68 + 140 + 40 + 78 = 94 + 116 + 62 = 326 272 Units 68 140 40 24 272 Ending Inventory Inventory From Mar 16 Purchase Units 54 Unit Cost $16.50 Unit Cost $15.00 $15.50 $16.00 $16.50 = 326 = 272 = 54
10,292 people like Accounting Explained.

Accounting Explained
Like

Total $1,020 $2,170 $640 $396 $4,226 Total $891

Facebook social plugin

FIFO Perpetual
Purchases Units 140 Unit Cost $15.50 Total $2,170 Units Sales Unit Cost Total Units 68 68 Balance Unit Cost $15.00 $15.00 Total $1,020 $1,020

Date Mar 1 5

http://accountingexplained.com/financial/inventories/fifo-method

1/2

1/21/2014
9 11 16 40 78 $16.00 $16.50 $640 $1,287 68 26

First-In First-Out (FIFO) Method | Example | Inventory Valuation

140 $15.00 $15.50 $1,020 $403 114 40 114 40 78 20 29 114 2 38 24 $15.50 $16.00 $16.00 $16.50 $1,767 $32 $608 $396 38 78 54 $15.50 $16.00 $15.50 $16.00 $16.50 $16.00 $16.50 $16.50 $1,767 $640 $1,767 $640 $1,287 $608 $1,287 $891 114 $15.50 $15.50 $2,170 $1,767

Written by Irfanullah Jan

Tw eet Like Share 154

Cash Registers
www.superb.co.za Olivetti Cash Registers PoS Cash Registers

C opyright 2011 - 2013 AccountingExplained.com | All Rights Reserved No part of this website may be reproduced without a prior written permission. C ontact Us | Privacy Policy | Disclaimer

http://accountingexplained.com/financial/inventories/fifo-method

2/2