Register now or log in to join your professional community.
first in should be first out to save items from expire then lost cost for co.
The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct inventory valuation method. The FIFO flow concept is a logical one for a business to follow, since selling off the oldest goods first reduces the risk of obsolescence.
Under the FIFO method, the earliest goods purchased are the first ones removed from the inventory account. This results in the remaining items in inventory being accounted for at the most recently incurred costs, so that the inventory asset recorded on the balance sheet contains costs quite close to the most recent costs that could be obtained in the marketplace. Conversely, this method also results in older historical costs being matched against current revenues and recorded in the cost of goods sold; this means that the gross margin does not necessarily reflect a proper matching of revenues and costs. For example, in an inflationary environment, current-cost revenue dollars will be matched against older and lower-cost inventory items, which yields the highest possible gross margin.
During Inventory calculation, year ending inventory is calculated by using the formula, (Opening Inventory cost + Cost of goods purchased during the period) - (Cost of goods sold during the period). Also we need to add Inventory carrying cost to get more appropriate Inventory calculation. As a general rule 20% of the total inventory during that period has been taken as Inventory carrying cost.
Waiting for expert answer .Thank you
Agree with all the experts answer ////////////////////////
FIFO stands for "first-in, first-out", and is a method of inventory costing which assumes that the costs of the first goods purchased are those charged to cost of goods sold when the company actually sells goods.
FIFO and LIFO methods are accounting techniques used in managing inventory and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks. These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes .
This method assumes the first goods purchased are the first goods sold. In some companies, the first units in (bought) must be the first units out (sold) to avoid large losses from spoilage. Such items as fresh dairy products, fruits, and vegetables should be sold on a FIFO basis. In these cases, an assumed first-in, first-out flow corresponds with the actual physical flow of goods.
Because a company using FIFO assumes the older units are sold first and the newer units are still on hand, the ending inventory consists of the most recent purchases. When using periodic inventory procedure to determine the cost of the ending inventory at the end of the period under FIFO, you would begin by listing the cost of the most recent purchase. If the ending inventory contains more units than acquired in the most recent purchase, it also includes units from the next-to-the-latest purchase at the unit cost incurred, and so on. You would list these units from the latest purchases until that number agrees with the units in the ending inventory.
How to Calculate Ending Inventory Using FIFOEnding inventory = beginning inventory + net purchases - cost of goods sold
Keep in mind the FIFO assumption: Costs of the first goods purchased are those charged to cost of goods sold when the company actually sells goods.
When Using FIFO
