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When you buy the same item at different prices, which cost do you use for a sale? The method you choose changes your profit and the value of your stock.
FIFO (first in, first out) assumes the oldest units sell first, so sales are costed at the oldest prices. Weighted average spreads the total cost of all purchases evenly over all units.
Example: you bought 100 units at 10 and then 100 at 12, and sold 150. FIFO: 100 x 10 + 50 x 12 = 1,600 cost of goods sold, leaving 50 x 12 = 600 in stock. Weighted average: 2,200 / 200 = 11 a unit, so 1,650 sold and 550 left.
Compare the two methods when:
Up Stock's daily profit report costs each sale first in, first out from your real purchase prices, so you never do this by hand.
When prices are rising, FIFO costs sales at older, cheaper prices, so profit is higher and stock is valued closer to today's prices. When prices fall, the opposite happens.
Physically, yes: sell the oldest stock first so nothing expires. For accounting, many businesses use FIFO for the same reason, because the numbers then follow the goods.
For your books, check your local accounting rules: most require you to use one method consistently. For your own analysis, comparing both is useful any time.
Last in, first out is not allowed under international accounting standards (IFRS) and is rarely used by small businesses, so it is left out here.
How many times your stock sells through, and days on hand
Freight, duty and fees spread across every item
Cost, price, markup and margin from any two