FIFO
Also called: First In First Out, first in first out
What is FIFO?
FIFO, or first in first out, assumes the oldest stock is sold first. As a physical practice it moves older goods before newer ones; as a valuation method it costs sales at the oldest purchase rates, leaving recent costs in closing stock.
Why FIFO matters
For anything perishable, FIFO is not optional — it is the difference between selling stock and writing it off. As a valuation basis it also keeps closing stock close to current replacement cost.
How FIFO works in practice
Physically rotate on receiving: new stock behind, old in front, with dates visible. In the books, apply the basis consistently, because switching methods between periods makes gross profit incomparable.
Worked example
With 100 units bought at ₹40 then 100 at ₹45, FIFO costs the first 100 sold at ₹40 and leaves ₹45 stock on the shelf.
Frequently asked questions
The consistency of the method matters more than the choice; changing methods to flatter profit invites questions.