FIFO costing
Objective: Apply FIFO to purchase layers.
Recommended first: Perpetual inventory basics
FIFO assumes the oldest units are sold first. Cost of goods sold uses the earliest purchase costs; ending inventory uses the most recent. Other methods exist (weighted average, specific identification); exercises always state which applies.
Lay out purchase layers in a table: units and unit cost in purchase order. For FIFO, take units sold from the top layer down. Ending inventory is what remains in the lowest layers — the most recent purchases. Showing the layers makes your calculation easy to check.
Check your work
- Were the oldest units used first?
- Do units sold plus units remaining equal units available?
- Do COGS plus ending inventory equal total purchases?
Under rising prices, FIFO generally gives lower cost of goods sold and higher ending inventory than methods that use more recent costs.
Buy 10 @ $10 and 10 @ $12; sell 15. COGS = 10×$10 + 5×$12 = $160; ending = 5×$12 = $60.
| Account | Debit | Credit |
|---|---|---|
| Cost of Goods Sold | $160.00 | |
| Inventory | $160.00 |
Common mistakes
✗ Using the latest cost for units sold under FIFO.
✓ Use the oldest layers first.
Guided practice
Use hints freely here.
Item 1 of 1
FIFO cost of goods sold
A shop starts with no inventory. It buys 26 units at $11.00 each, then 19 units at $12.00 each. It then sells 41 units. Using FIFO (first-in, first-out), compute cost of goods sold and ending inventory.
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Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 2
Net sales and gross profit
Gross sales are $17,500.00, sales returns are $900.00, and cost of goods sold is $7,000.00. Compute net sales and gross profit.
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Key terms
- FIFO
- First-in, first-out inventory costing.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.