The ‘First In, First Out’ Method Explained

To make inventory management a hassle-free issue, one key concept to perfect in inventory valuation. All inventory valuation is when you determine what amount of your complete stock pile in inventory is valued at the final point of a specified time. Businesses and retailers then take this unit figure out the cost of goods sold (also known as COGS), and also state it in their balance sheets. Stitch Labs now offers a comprehensive inventory management software and also inventory accounting for brands that are developing at a fast rate.

While there are various different ways and techniques to get a proper inventory valuation, they all have their own pluses and negatives. Take an in depth look with us now as we pursue the technique behind the ‘First In, First Out’ (FIFO) method and gather more information to gain a better understanding of the FIFO meaning and if it will help to develop your continually growing and prospering business.

In layman’s terms, what does FIFO mean exactly? Again, FIFO (‘First In, First Out’) is an acronym for the previously explained valuation technique. Although some have a different view of the exact meaning of the FIFO acronym, in retail you can pretty much safely bet that it is a reference to inventory accounting and also inventory management. A source like provides a more in depth and detailed explanation of the FIFO method and technique.

The First In First Out method, or FIFO technique, is an assumptive cost flow value of your inventory. It sticks to the understanding of the concept that the first product in a business or commercial purchase is also the very first item that the business or commercial entity will sell. It will be assuming that the retailer or commercial entity will be selling the most outdated stock that is available for each purchase. 
As for the retailer’s accounting side of things, this determines that the oldest price that is paid for inventory stock is recorder when an item sells. From there, that said price makes up the cost of goods sold (COGS) unit all the way until all of the inventory and goods that were purchased for that specific amount has all been sold and is completely depleted.

Now, there are instances where this suggested flow of goods equals the retailer’s realistic operations, and there are also times as well when this isn’t how a retailer will be actually moving stock. As for time for tax reporting, the ‘First In First Out’ method will be assuming that any of the stock a retailer is currently holding onto will also be equal to the product costs of the initially gathered goods.

The ‘First In, First Out’ method is currently accepted and approved by the U.S. Generally Accepted Accounting Principles (GAAP), which is known to be the standard for accounting by the Securities and Exchange Comission (SEC). Globally, it’s accepted and approved by the International Financial Reporting Standards (IFRS) determined through the International Accounting Standards Board (IASB).