Browse Accounting

Inventory Flow Assumptions

Accounting terms for FIFO, first-in first-out, and LIFO inventory flow assumptions.

Inventory Flow Assumptions covers FIFO, first-in first-out, and LIFO inventory flow assumptions.

Use these pages when inventory accounting changes gross margin, working capital, taxable income, obsolescence risk, or cash-conversion analysis. It sits inside Inventory Accounting, so readers can move up when the broader accounting context matters.

Use the table below to choose the narrower accounting branch before applying a term to a statement line, model input, audit trail, tax schedule, covenant test, or management report.

What This Branch Covers

AreaUse it for
FIFOFIFO is an inventory cost-flow assumption that assigns the oldest costs to cost of goods sold and leaves newer costs in ending inventory.
First-in, First-OutInventory cost-flow assumption that treats the earliest purchased goods as sold first, affecting COGS and inventory values.
LIFOLIFO is an inventory cost-flow assumption that assigns the most recent costs to cost of goods sold before older inventory costs.

What to Check

  • Inventory class, cost flow assumption, unit cost, production stage, WIP balance, lower-of-cost-or-market test, and write-down trigger.
  • Purchase record, production report, count sheet, costing system, COGS reconciliation, and note disclosure.
  • Effect on gross profit, working capital, cash conversion, taxes, obsolescence, and valuation multiples.
  • Whether the issue is raw materials, WIP, finished goods, consignment, spare parts, or inventory reserves.
  • Comparability across FIFO, LIFO, weighted average, standard cost, and reporting periods.

Common Mistakes

  • Treating inventory value as guaranteed sale value.
  • Ignoring obsolete, slow-moving, consigned, or written-down inventory.
  • Comparing gross margins without checking cost-flow assumptions.
  • Mixing production cost, period cost, and inventory reserve concepts.

Inventory-accounting content is educational and does not provide accounting, tax, audit, legal, inventory-management, investment, or valuation advice.

In this section

Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.

FIFO

FIFO is an inventory cost-flow assumption that assigns the oldest costs to cost of goods sold and leaves newer costs in ending inventory.

First-In, First-Out

Inventory cost-flow assumption that treats the earliest purchased goods as sold first, affecting COGS and inventory values.

LIFO

LIFO is an inventory cost-flow assumption that assigns the most recent costs to cost of goods sold before older inventory costs.

Revised on Sunday, June 21, 2026
Inventory Valuation