FIFO & LIFO (Inventory)
FIFO (First In, First Out) and LIFO (Last In, First Out) are methods governing which units of stock are used, sold or shipped first. Under FIFO, the oldest stock is moved first — essential for perishable, dated or ageing goods (food, pharma, batteries) to prevent spoilage and obsolescence, and the most common warehouse rotation rule. Under LIFO, the most recently received stock is moved first, which suits non-perishable bulk goods stacked and drawn from the top (a related warehouse variant is FEFO — First Expired, First Out, driven by expiry date rather than receipt date).
The terms apply in two linked senses: physical stock rotation in the warehouse, and inventory cost accounting, where FIFO and LIFO determine which costs are assigned to goods sold and thus affect reported profit and stock value (LIFO is permitted under US GAAP but not under IFRS). Choosing and enforcing the right rotation method — usually FIFO/FEFO for anything that ages — is central to reducing waste and keeping inventory valuation correct.
Move the wrong stock first and dated goods expire on the shelf while fresh stock ships — FIFO/FEFO rotation is what prevents that waste, and the same methods drive how inventory is costed and profit reported. Enforcing correct rotation is a direct lever on both spoilage and financial accuracy, especially for anything that ages.
When should FIFO be used?
For perishable, dated or ageing goods, so the oldest stock moves first and spoilage or obsolescence is minimised.
What is FEFO?
First Expired, First Out — a rotation rule based on expiry date rather than receipt date, common for pharma and food.