how to calculate ending inventory using fifo

How to calculate ending inventory using FIFO is an important accounting technique used to determine the value of remaining inventory at the end of a period. FIFO, or “First In, First Out,” is an inventory method where the oldest inventory items are sold or used first. To calculate ending inventory using FIFO, start by identifying the costs of goods sold (COGS) based on the earliest purchased inventory. Once you’ve determined COGS, subtract that from the total value of inventory at the beginning of the period to get the ending inventory. The ending inventory will reflect the most recent purchases, as FIFO assumes that the older stock is sold first. This method is particularly useful for businesses dealing with perishable goods or items that are subject to price increases over time. FIFO provides a clear picture of a company’s remaining inventory value, which can impact financial reporting and tax calculations.