FIFO costing explained for small shops
· 4 min read · SHENZEE Tech
FIFO stands for "first in, first out". It means the oldest stock is sold first, and each sale uses the cost of that oldest batch.
A simple example
- Monday you buy 10 packets at Rs 100 each.
- Friday you buy 10 more at Rs 120 each.
- You sell 12 packets at Rs 150.
With FIFO, the first 10 sold cost Rs 100 and the next 2 cost Rs 120. Cost of goods sold is Rs 1,240. Revenue is Rs 1,800. Profit is Rs 560.
Why it matters
If you used one average price, your profit would be off whenever supplier prices change. FIFO follows the real cost of what is on your shelf, and the 8 packets left are valued at Rs 120, what you paid for the newer batch.
What you need to use it
The system must record each purchase as its own batch with its own cost, and take each sale from the oldest batch. Nexsora does this automatically, and shows the batches for every product.