Editing FIFO and LIFO accounting (section)

==FIFO==
{{Other uses|FIFO (disambiguation){{!}}FIFO}}

[[File:Boxes_of_instant_noodles_on_a_supermarket_shelf,_with_the_words_"First_In_First_Out_-_Retain_Freshness"_written_on_them.jpg|thumb|Boxes of instant noodles on a supermarket shelf, with the words "First In First Out / Retain Freshness" written on them]]
"FIFO" stands for ''first-in, first-out'', meaning that the oldest inventory items are recorded as sold first (but this does not necessarily mean that the exact oldest physical object has been tracked and sold). In other words, the cost associated with the inventory that was purchased first is the cost expensed first. 

A company might use the LIFO method for accounting purposes, even if it uses FIFO for [[Field inventory management|inventory management]] purposes (i.e., for the actual storage, shelving, and sale of its merchandise). For example, a company that sells many perishable goods, such as a [[supermarket]] chain, is likely to follow the FIFO method when managing inventory, to ensure that goods with earlier expiration dates are sold before goods with later expiration dates. However, this does not preclude that same company from accounting for its merchandise with the LIFO method. 

With FIFO, the cost of inventory reported on the balance sheet represents the cost of the inventory purchased earliest. FIFO most closely mimics the flow of inventory, as businesses are far more likely to sell the oldest inventory first.

Consider this example: Foo Co. had the following inventory at hand, in order of acquisition in November:
{| class="wikitable"
|-
! Number of units !! Cost
|-
| 100 units || $50
|-
| 125 units ||$55
|-
| 75 units || $59
|}

If Foo Co. sells 210 units during November, the company would expense the cost associated with the first 100 units at $50 and the remaining 110 units at $55. Under FIFO, the total cost of sales for November would be $11,050. The ending inventory would be calculated the following way:

{| class="wikitable"
|-
! '''Number of units''' !! '''Price per unit''' !! '''Total'''
|-
| Remaining 15 units || $55 || $825 ($55 x 15 units)
|-
| 75 units || $59 || $4425 ($59 x 75 units)
|-
| '''Total''' ||  || $5250
|}
     
Thus, the balance sheet would now show the inventory valued at $5250.

=== FIFO Tax Implications ===
FIFO will have a higher ending inventory value and lower cost of goods sold (COGS) compared to LIFO in a period of rising prices. Therefore, under these circumstances, FIFO would produce a higher gross profit and, similarly, a higher income tax expense.