FIFO uses the oldest cost for cost of goods sold on the income statement and the newest cost for inventory on the balance sheet.
What is FIFO?
First In, First Out, sometimes known as FIFO, is a strategy of managing assets and valuing them that prioritizes the sale, use, or disposal of assets that were produced or acquired first.
For taxation purposes, FIFO presumes that the cost of items sold on the income statement includes the assets with the oldest expenses (COGS). The assets in the inventory that are still available are compared to those that were just bought or made.
For the purposes of cost flow assumptions, the FIFO technique is employed. The associated costs for a product must be recorded as an expense in manufacturing as it moves through subsequent phases of development and is sold.
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