FIFO stands for First In, First Out.
It is an accounting method in which assets purchased or acquired first are disposed of first.
The FIFO method is an important means for a company to value their ending inventory at the finish of an accounting period.
Formula to calculate FIFO.
This method assumes that inventory purchased first is sold first.
Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows:
January 1 Purchased 5 bikes @ $50 each
January 5 Sold 2 bikes
January 10 Sold 1 bike
We can calculate as follows.
Date Purchase Issues Closing Inventory