What is FIFO or LIFO?
What is FIFO or LIFO?
FIFO (First In First Out) is a method of approximating the cost of goods that a company sold from its inventory. It can be difficult for a company to know the exact amount they paid for each individual item that they sell so instead they assume that the cost of the item being sold is the cost of the first thing purchased into their inventory that was not yet sold (ie. the oldest one of this product currently in their inventory).
LIFO (Last In First Out) is a method of approximating the cost of goods that a company sold from its inventory. It can be difficult for a company to know the exact amount they paid for each individual item that they sell so instead they assume that the cost of the item is the cost of the last thing purchased into their inventory that was not yet sold (ie. the newest one of this product currently in their inventory).
For more information on this topic, check out this article from our friends at Investopedia.