Accounting Terms Dictionary

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FIFO is an abbreviation for the first in first out method of accounting for inventory.

Let’s say you had the following inventory purchases:
January: 200 units @ $10 each for a total of $2000
February: 100 units @11 each for a total of $1100
March: 150 units @ 12 each for a total of $1800

If I sold 250 units, I would compute the cost of goods sold by calculating the cost of the first 250 units I had purchased. That would mean 200 @10 for $2000 plus 50 @ 11 for $550 for a total cost of goods sold of $2550.

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