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What is the definition of FIFO, LIFO, and Average Cost?

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Question added by Rehan Qureshi , Financial Consultant , Self Employeed
Date Posted: 2016/01/10
Hetan Kachhadia
by Hetan Kachhadia , Senior Accountant , AVD Infra India Pvt Ltd

FIFO: This method assumes that the first unit making its way into inventory is the first sold.

 

LIFO: This method assumes that the last unit making its way into inventory is sold first. The older inventory, therefore, is left over at the end of the accounting period.

 

Average Cost : This method is quite straightforward; it takes the Weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory

 

FIFO LIFO AND AVERAGE COSTS all of them are a tool for valuing inventory 

FIFO  Ending inventory contains recent costs and cost of good sold contains oldest costs

LIFO ending inventory contains oldest costs and cost of good sold contains recent costs

average costing is by weighted costs to value ending inventory and cost of good sold

 

the type of industry and the degree of inflation specify which one should be used.

manseer muhammed ali
by manseer muhammed ali , Accountant General , Royal Lighting L.L.C & Royal Furnishing LLC

FIFO stands for first-in, first-outmeaning that the oldest inventory items are recorded as sold first but do 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.

LIFO is the acronym for last-in, first-out. It is a cost flow assumption that can be used by U.S. companies in moving the costs of products from inventory to the cost of goods sold. Under LIFO the latest or more recent costs of products purchased (or produced) are the first costs expensed as the cost of goods sold.

 

average cost and/or unit cost is equal to total cost divided by the number of goods produced (the output quantity, Q)

 

Rehan Qureshi
by Rehan Qureshi , Financial Consultant , Self Employeed

The difference between these three inventory methods is in the way Cost of Good Sold (COGS) is calculated. A company typically does not track every single piece of inventory when it is sold, but assumes a general order that the inventory is sold, thus creating the total COGS for the accounting period. Consider the following explanations and example.To understand First-In, First-Out (FIFO) inventory method, consider the purchase of milk at your local grocery store. When you grab a carton of milk, you are buying the first milk that was placed on the rack, not the most recent milk. The first milk carton placed on the rack (first in) is the first milk carton (first out) sold.To understand Last-In, First-Out (LIFO) inventory method, consider the sale of a screw at a hardware store. When the hardware store replenishes the bucket of screws, the last screw to be placed on the pile (last in) is the first screw grabbed and purchased (First Out). Companies need to be aware of LIFO liquidation and how it will affect their income statement.The understand the average cost method, it is fairly straight forward. A company is not worried about the order in which inventory is sold. Rather, the company the company computes an average cost of their inventory as a whole and assigns the average cost to each piece of inventory sold.

FIFO représente les initiales de l'expression comptable anglophone First In First Out, littéralement en français premier entré premier sorti. Il s'agit d'une méthode de gestion des stock dont l'objet est de faire sortir les marchandises et matiéres premieres par ordre d'entrée en stock.

and lLIFO est un sigle qui signifie Last In First Out, dernier arrivé, premier parti. Il s'utilise en tant que méthode de valorisation des stock en logistique ou en comtabilité analytique.

 

radouane elainous
by radouane elainous , Responsable Construction-Management, Engineering Civil Works and Maintenance at INWI , WANA COPORATE

FIFO  :first in first out  

LIFO : last in first out 

average cost  is equal to total cost divided by the number of goods produced  It that means  cost of prodact unit .

MOHAMMED YAHIYA SHAREEF SHAREEF
by MOHAMMED YAHIYA SHAREEF SHAREEF , Warehouse Assistant Manager , OMANI INTEGRATED LOGISTICS SERVICES SAOC

FIFO stands for first-in, first out. A valuation method in which the assets/ inventory items produced or acquired first, are sold, consumed used or disposed first.

 

LIFO stands for last-in, first-out, A valuation method in which the assets/Inventory items produced or acquired most recently (last) are sold, consumed used or disposed first.

 

 

AVERAGE COST:A representative measure of a range of cost that is calculated by taking the sum of the values and dividing it by the number of costs being examined. The average cost reduces the range into a single value, which can then be compared to any point to determine if the value is higher or lower than what would be expected.

 

 

 

Satya Prakash Tiwari
by Satya Prakash Tiwari , Assistant Manager Purchase , Alkem Laboratories Ltd

FIFO- First in first out

LIFO-Last in last out

Average cost= total value of product/total number of items

 

Subash basnet
by Subash basnet , warehouse supervisor , Action international service

First in first out and last in first out.

FIFO means First In - First Out

If the items doesn't have an expiry date on it, FIFO will most likely be applied in terms of priority for issuance or consumption.  The First Item who gets In at the Warehouse should always be the First Item to get Out.  

 

LIFO means Last In - First Out.

This method is applicable to those items who are affected by inflation/deflation.

One best example of this is the "Oil/Gasoline Products".  In most cases, the price of Oil/Gasoline dramatically increases from time to time, hence, the investment cost of procuring it is very critical to consider. LIFO is ideal practice to do for these kind of items.  For instance, the last batch of incoming inventories were procured at a lower cost rather than those of early batches, and the selling cost is quite high, revenue is most likely to be observed and considered profitable.

 

Average Cost means the total cost divided by a certain number of goods/items produced or bought.  

For example: Within three months time, from January to March, in January the item costs around, while in February it is, and in March it costs around; therefore; the average costs of the item within a given period is.

The equation would be; =, and then divide it by3 (months) and we will have as the average cost.  

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