Definition
FIFO (first in, first out) is an inventory costing method that assumes the oldest stock is sold first, so cost of goods sold uses the earliest purchase costs and remaining stock is valued at the latest ones.
What is FIFO costing in practice?
Each receipt forms a cost layer, and sales use up the oldest layer first, then the next.
Selling 150 units from two cost layers
Example- Layer 1: 100 units at SAR 20
- SAR 2,000
- Layer 2: 50 of 100 units at SAR 24
- SAR 1,200
Cost of the sale
SAR 3,200
In a rising market FIFO shows lower cost of sales and higher stock value than weighted average cost. FIFO is a costing assumption; it doesn’t require you to ship the oldest stock first, though perishable businesses often pick that way. See weighted average or FIFO?