Inventory finance
FIFO (First In, First Out)
By the Supply Chain Manager team · Updated October 16, 2026
FIFO (first in, first out) assumes the oldest stock is sold first, both as a physical picking rule and as a method of valuing inventory and cost of goods sold.
As a valuation method, FIFO charges the oldest purchase costs to cost of goods sold, so remaining inventory is valued at the most recent costs. When prices are rising, that gives lower COGS and higher reported profit than LIFO.
Physically, FIFO rotation keeps older stock moving so it does not age on the shelf.
FIFO example
Illustrative numbers: you bought 100 units at $4 and then 100 at $5, and sold 150. Under FIFO, COGS = 100 × $4 + 50 × $5 = $650, and the 50 units left are valued at $5 each ($250).
Why FIFO matters for distributors
FIFO is permitted under both IFRS and US GAAP and is widely used. Your accountant chooses the valuation method; it affects reported margin and inventory value, not what is physically on the shelf.
Common FIFO mistakes
- Assuming the valuation method has to match physical picking order.
- Ignoring FEFO for dated goods, where expiry matters more than arrival order.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.