FIFO Method

- Under FIFO, the first costs inventoried

are the first costs transferred to cost of goods sold.

Ending inventory includes the most recently incurred

costs; thus, the ending inventory balance approximates

replacement cost. In periods of rising prices, income

may be overstated because the FIFO method results in

the highest ending inventory, the lowest costs of goods

sold, and the highest net income (current costs are not

matched with current revenues). See also specific

identification method and weighted average method and

moving average method and LIFO method.