1. What is FIFO Inventory Method?

The FIFO (First-In, First-Out) method assumes that the oldest inventory items are sold first. This means the ending inventory consists of the most recently purchased items, valued at their current costs.

2. How Does the Calculator Work?

The calculator uses the FIFO method formula:

Where:

• Purchases are sorted by date (oldest first)
• Cost of goods sold is calculated using oldest inventory first
• Ending inventory is calculated from most recent purchases

Explanation: The calculator processes inventory purchases in chronological order, matching sales against the oldest inventory first.

3. Importance of FIFO Calculation

Details: FIFO is important for accurate financial reporting, tax calculations, and inventory management. It typically results in higher ending inventory values during periods of inflation.

4. Using the Calculator

Tips: Enter each purchase on a separate line in the format: quantity,cost,date (YYYY-MM-DD). For example: "100,5.50,2023-01-15". Then enter total units sold.

5. Frequently Asked Questions (FAQ)

Q1: When should I use FIFO vs LIFO?
A: FIFO is more common and gives a better representation of actual inventory flow. LIFO is only used in certain jurisdictions for tax advantages.

Q2: How does FIFO affect financial statements?
A: FIFO typically shows higher profits during inflation as older, cheaper inventory is matched against current revenues.

Q3: What if my inventory has different purchase dates?
A: The calculator can handle multiple purchases at different dates - just enter each purchase separately with its date.

Q4: Are there limitations to FIFO calculation?
A: FIFO assumes inventory flows in purchase order, which may not match physical flow. It also requires tracking purchase dates.

Q5: How does FIFO compare to average cost method?
A: Average cost smoothes out price fluctuations, while FIFO shows more current inventory values on the balance sheet.