Glossary / FIFO · Also called First in, first out

How it works

FIFO follows how most shops physically move stock: older goods go out first. It does not require you to track which actual unit sold. It is a cost-flow rule applied to the records.

When prices are rising, FIFO gives a lower cost of goods sold and a higher profit than average cost, because the cheaper old costs go to the sales. The closing inventory is closer to what it would cost to replace. When prices fall, the effect reverses.

FIFO needs the records to keep each purchase layer, its quantity and cost, until it is used up.

Worked example: Selling 25 units under FIFO

A shop buys 20 units at $10 on March 1 and 20 units at $13 on March 15, then sells 25 units.

	Units	Cost
From the March 1 layer	20 × $10	$200
From the March 15 layer	5 × $13	$65
Cost of goods sold	25	$265
Left in stock	15 × $13	$195

In the US and in Canada

In the United States

FIFO is allowed for US tax and is the most common method. LIFO is also allowed in the US if used for financial statements too.

In Canada

FIFO is allowed for Canadian tax and under Canadian standards. LIFO is not.

In AcboBooks

AcboBooks does not use FIFO. It values inventory at average cost only, the same method QuickBooks Desktop Pro and Premier use. If your accountant needs FIFO figures, they are worked out outside the program.

Related terms

Related on this site

Sources

IRS Publication 538, Accounting Periods and Methods

Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

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FIFO