COULD U SHED SOME LIGHT OFN FIFO METHOD

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Certainly! The FIFO (First-In, First-Out) method is an inventory valuation method used in accounting and financial management. It assumes that the items that are acquired or produced first are the ones that are sold or used first.

To understand how the FIFO method works, let me walk you through the calculation steps:

Step 1: Begin with the opening inventory balance, which represents the value of inventory from the previous accounting period.

Step 2: Track the purchases or production during the current period, including both quantity and cost. It is important to record the order in which these purchases occur.

Step 3: When a sale or usage occurs, calculate the cost of goods sold (COGS) by using the oldest inventory first. Determine the cost of each item sold by multiplying the quantity sold with its corresponding purchase or production cost.

Step 4: After each sale or usage, update the remaining inventory balance by subtracting the sold quantity.

Step 5: Repeat step 3 and step 4 until all sales or usage are accounted for.

By following these steps, the FIFO method ensures that the cost of goods sold is based on the earliest inventory purchased or produced. The remaining inventory is valued at the most recent cost.

FIFO is generally considered a more realistic method for inventory valuation when the cost of goods tends to increase over time, as it aligns with the natural flow of inventory. However, it's important to note that FIFO may not accurately reflect the current market value of inventory.

I hope this explanation helps to shed light on the FIFO method! Let me know if you have further questions.