Accounting #132: FIFO Perpetual Inventory Method

The fi rst-in, fi rst-out (FIFO) method assumes that the earliest goods purchased are the fi rst to be sold. FIFO often parallels the actual physical fl ow of merchandise. That is, it generally is good business practice to sell the oldest units first. Under the FIFO method, therefore, the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold. This does not necessarily mean that the oldest units are sold first, but that the costs of the oldest units are recognized first.