FIFO / LIFO
Inventory cost calculation methods
FIFO (First In, First Out) is an inventory costing method that assumes items received into the warehouse first are also sold first. It's especially suited to perishable or expiring products (food, cosmetics), and tends to reflect replacement cost more accurately during inflationary periods. LIFO (Last In, First Out) assumes the most recently received inventory is sold first, and is sometimes preferred for tax reporting during inflation because it produces a higher COGS and lower taxable profit (note: LIFO isn't permitted under every country's accounting standards). The chosen method directly affects reported COGS, gross profit, and tax liability. The most common mistake is switching methods frequently without a justified accounting reason, which makes it hard to compare performance across periods. In StoreChart, you can choose a costing method separately for each product, and the system automatically calculates current inventory cost based on the selected method.
The choice between FIFO and LIFO isn't just an accounting formality — it changes reported profitability during periods of price change. Under FIFO, when supplier costs are rising, the oldest (cheaper) stock is recorded as sold first, which pushes reported COGS down and gross margin up compared to LIFO, where the newest (pricier) stock is recorded as sold first. For most physical, perishable, or trend-sensitive inventory, FIFO also matches how products should actually move through a warehouse — oldest stock shipped first — so accounting method and physical stock rotation are usually aligned in FIFO shops, whereas LIFO is more common in industries with non-perishable, interchangeable inventory like fuel or raw materials.
StoreChart's inventory-management and profitability modules apply FIFO logic by default when calculating per-SKU cost of goods sold, matching the physical reality most eCommerce operations actually follow (oldest stock shipped first) with the financial reporting layer — so the margin numbers a store owner sees reflect the same stock rotation logic the warehouse is actually using, rather than a mismatched accounting assumption running in parallel to physical practice.
A business that has always assumed FIFO without checking should confirm the actual accounting method configured in its systems before relying on margin reports for a major pricing decision — the two methods produce materially different COGS during any period of meaningful price change, and finding out the assumption was wrong after a decision is made is far costlier than checking first.
For perishable or fashion-trend inventory specifically, FIFO isn't just an accounting preference but an operational necessity — letting older stock sit while newer stock ships first risks spoilage or obsolescence that no accounting method can undo after the fact, making physical stock rotation the higher priority in those categories.
Frequently asked questions
FIFO typically shows higher reported profit when supplier costs are rising, because it records the older, cheaper inventory as the cost of the goods sold, while LIFO records the newer, more expensive inventory as sold first, pushing COGS up and profit down.
For most perishable or trend-sensitive goods, yes — shipping the oldest stock first (physical FIFO) both reduces spoilage/obsolescence risk and aligns with FIFO accounting, so the physical and financial models reinforce each other.
No — LIFO is permitted under US GAAP but is not allowed under IFRS, which many countries outside the US follow, so an internationally operating business needs to confirm which method its jurisdiction's accounting standards actually permit.