FIFO (first in, first out)
FIFO assumes the earliest purchased or produced interchangeable inventory units are issued first. Cost of sales therefore uses earlier costs, and closing inventory is based on later purchases remaining. It is a cost formula, so actual physical movement need not follow the same order. The resulting closing cost is still compared with net realisable value.
Worked example
Buy ten units at $4 and ten at $6, then sell twelve. FIFO cost of sales is $40 + $12 = $52; eight units remain at $6.
Common mistake
During rising prices, FIFO usually produces lower cost of sales and higher profit than average cost, not a lower closing inventory value.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Supporting | July 2027–August 2028 |
| ACCA | F2 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: First in, first out