First-In, First-Out (FIFO) is one of the methods commonly used to calculate the value of inventoryon hand at the end

of an accounting period and the cost of goods sold during the period. This method assumes that inventory purchased or manufactured first is sold first and newer inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and that of newer inventory is assigned to ending inventory. The actual flow of inventory may not exactly match the first-in, first-out pattern. First-In, First-Out method can be applied in both the periodic inventory system and the perpetual inventory system. The following example illustrates the calculation of ending inventory and cost of goods sold under FIFO method:

Example
Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system. Mar 1 5 9 11 16 20 29 Solution Beginning Inventory Purchase Sale Purchase Purchase Sale Sale 68 units @ $15.00 per unit 140 units @ $15.50 per unit 94 units @ $19.00 per unit 40 units @ $16.00 per unit 78 units @ $16.50 per unit 116 units @ $19.50 per unit 62 units @ $21.00 per unit

FIFO Periodic
Units Available for Sale Units Sold Units in Ending Inventory Cost of Goods Sold Sales From Mar 1 Inventory Sales From Mar 5 Purchase Sales From Mar 11 Purchase Sales From Mar 16 Purchase = 68 + 140 + 40 + 78 = 94 + 116 + 62 = 326 272 Units 68 140 40 24 272 Ending Inventory Inventory From Mar 27 Purchase Units 54 Unit Cost $16.50 Unit Cost $15.00 $15.50 $16.00 $16.50 = 326 = 272 = 54 Total $1,020 $2,170 $640 $396 $4,226 Total $891

FIFO Perpetual
Date Mar 1 5 9 11 16 40 78 $16.00 $16.50 $640 $1,287 140 $15.50 $2,170 68 26 $15.00 $15.50 $1,020 $403 114 40 114 40 78 20 29 114 2 38 24 $15.50 $16.00 $16.00 $16.50 $1,767 $32 $608 $396 38 78 54 $15.50 $16.00 $15.50 $16.00 $16.50 $16.00 $16.50 $16.50 $1,767 $640 $1,767 $640 $1,287 $608 $1,287 $891 Purchases Units Unit Cost Total Units Sales Unit Cost Total Units 68 68 140 114 Balance Unit Cost $15.00 $15.00 $15.50 $15.50 Total $1,020 $1,020 $2,170 $1,767