Glossary

What is FIFO?

FIFO (first in, first out) is a rotation method where older inventory is used or sold before newer stock.

Definition

FIFO matters operationally for any inventory that ages: food, dated medical supplies, batteries, anything with an expiration or a degradation curve. It also matters in accounting as a costing method that values cost of goods sold using the cost of the oldest inventory first, leaving newer (often more expensive) inventory on the balance sheet. The two uses are related but distinct. Physical FIFO is a stocking discipline. Accounting FIFO is a valuation method. Where teams trip: assuming FIFO happens automatically. It does not. FIFO requires putaway practices that put new stock behind old stock on the shelf, picking workflows that grab from the front, and lot tracking on items where dates matter. Without those practices, you can run accounting FIFO on books that contradict physical reality on the floor.

Example

A grocery stocker pulls older milk to the front of the cooler when restocking, so customers grab older units first. The system records sales against the oldest lot in stock to match physical movement.

By Cameron Priest · Co-founder, Order3

Cameron co-founded TradeGecko, the inventory platform acquired by Intuit. He has spent more than a decade building software for the people who run physical stock.

Updated 2026-06-16

Frequently asked questions

What is the difference between FIFO and LIFO?

FIFO (first in, first out) uses the oldest inventory first; LIFO (last in, first out) uses the newest first. FIFO usually matches physical rotation for perishable goods and leaves newer costs on the balance sheet. LIFO is a costing choice allowed in some jurisdictions and banned in others.

Is FIFO an accounting method or a stocking method?

Both, and they are distinct. Physical FIFO is the floor discipline of selling older stock first. Accounting FIFO is a costing method that values cost of goods sold using the oldest inventory cost first. You can run accounting FIFO on books that contradict the shelf if the floor discipline is missing.

How do you calculate FIFO?

For costing, assign the cost of your oldest units to each sale until those units are used up, then move to the next-oldest cost layer. Cost of goods sold reflects the oldest costs, and remaining inventory is valued at the most recent costs.

Where this lives in Order3

Use case

Lot & Expiration Tracking

Use case

Inventory Management

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