FIFO (First In, First Out)
Definition
An inventory costing method that assumes the oldest units are sold first, so COGS uses older costs and ending inventory reflects the most recent costs.
Want a deeper explanation?
FIFO matches how most physical products actually move and is the most common method for e-commerce brands. When costs are rising, it shows a lower COGS and higher profit than LIFO.
Whatever method you use should be applied consistently. Watch for: inventory systems and the accounting books using different costing methods, which makes COGS impossible to reconcile.
Example
You bought 100 units at $10 and then 100 at $12. You sell 120. Under FIFO, COGS is (100 × $10) + (20 × $12) = $1,240.