FIFOmenetelmä

FIFO method is a cost accounting principle. It stands for First-In, First-Out. This method assumes that the first inventory items purchased are the first ones sold. When a company uses the FIFO method, the cost of goods sold reflects the cost of the oldest inventory. Conversely, the remaining inventory on hand is valued at the cost of the most recently purchased items. This can have implications for a company's reported profit and tax liability, particularly in periods of fluctuating prices. If inventory costs are rising, FIFO will generally result in a lower cost of goods sold and therefore a higher gross profit and net income compared to LIFO (Last-In, First-Out). In contrast, if inventory costs are falling, FIFO will lead to a higher cost of goods sold and lower reported profit. The FIFO method is widely accepted internationally under International Financial Reporting Standards (IFRS). It is often considered a more realistic reflection of actual inventory flow for many businesses, as physical goods are typically sold in the order they are received. The simplicity of tracking oldest costs makes it a straightforward method to implement for inventory valuation.