{"id":13332,"date":"2023-03-29T15:24:50","date_gmt":"2023-03-29T19:24:50","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?post_type=sage_glossary&#038;p=13332"},"modified":"2023-03-29T15:24:50","modified_gmt":"2023-03-29T19:24:50","slug":"what-is-fifo-method-in-accounting-and-why-is-it-important","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-is-fifo-method-in-accounting-and-why-is-it-important\/","title":{"rendered":"What is FIFO method in accounting, and why is it important?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is FIFO method in accounting, and why is it important?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is FIFO method in accounting, and why is it important?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-is-fifo-method-in-accounting-and-why-is-it-important\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p class=\"\">FIFO, meaning \u201cFirst-In, First-Out,\u201d is a costing method you can use to value your inventory or Cost of Goods Sold (COGS). The FIFO accounting method is important for&nbsp;inventory management&nbsp;companies looking to control costs and optimize inventory levels throughout the value chain.<\/p>\n\n\n\n<p class=\"\">From a cost flow perspective, FIFO assumes the first goods you purchase are the first goods you sell or dispose of. Not only does FIFO help you avoid inventory obsolescence, but it also follows the guiding principles of inventory management and is a relatively simple inventory costing method to use.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">What are the main reasons for using FIFO?<\/h4>\n\n\n\n<p class=\"\">Both&nbsp;<a href=\"https:\/\/www.accounting.com\/resources\/gaap\/\" rel=\"noreferrer noopener\" target=\"_blank\">Generally Accepted Accounting Principles (GAAP)<\/a>&nbsp;and&nbsp;<a href=\"https:\/\/ifrscommunity.com\/knowledge-base\/fifo-lifo-weighted-average-cost\/\" rel=\"noreferrer noopener\" target=\"_blank\">International Financial Reporting Standards (IFRS)<\/a>&nbsp;accept the FIFO method. FIFO is even required by the IFRS in some regions.<\/p>\n\n\n\n<p class=\"\">Gross margins&nbsp;may be positively impacted when using the FIFO method during inflationary times. This happens when you have older, lower cost inventory matching to current-cost dollars of revenue. Higher income taxes may be a result.<\/p>\n\n\n\n<p class=\"\">You can learn much more about the pros and cons of the FIFO method from&nbsp;<a href=\"https:\/\/www.investopedia.com\/terms\/f\/fifo.asp\" target=\"_blank\" rel=\"noreferrer noopener\">Investopedia<\/a>.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Why is FIFO important?<\/h4>\n\n\n\n<p class=\"\">FIFO is important for product-oriented companies because inventory control can make or break efficiency, customer satisfaction, and profitability. Knowing what items you have, what you sold, and what it\u2019s all worth is essential to the health of inventory management businesses.<\/p>\n\n\n\n<p class=\"\">Sage Intacct Cloud Inventory Management System&nbsp;works together with your purchasing and order entry processes to keep you in control across locations from procure to pay.<\/p>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to our Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get our latest business advice delivered directly to your inbox.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-ab515c6e-7e90-4c2f-a67e-113872516e8b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"Working from home with tea in hand\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>FIFO, meaning \u201cFirst-In, First-Out,\u201d is a costing method you can use to value your inventory or Cost of Goods Sold (COGS). The FIFO accounting method is important for&nbsp;inventory management&nbsp;companies looking to control costs and optimize inventory levels throughout the value chain. From a cost flow perspective, FIFO assumes the first goods you purchase are the [&hellip;]<\/p>\n","protected":false},"author":1309,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[420],"class_list":["post-13332","sage_glossary","type-sage_glossary","status-publish","hentry","tag-cloud-financial-management"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice US","distributor_original_site_url":"https:\/\/www.sage.com\/en-us\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary\/13332","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/users\/1309"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary\/13332\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media?parent=13332"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/tags?post=13332"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}