FIFO (First In First Out)
Within Purchasing & Inventory (P&I) (also known as Adaco) the FIFO valuation method uses 'First In First Out' (FIFO) methodology to calculate transaction costs and Inventory values of goods on hand. This article will describe the method used for Inventory valuation through FIFO.
- Navigate to the Product’s Inventory tab, opening Inventory on hand and cost for each outlet - as seen in Fig.1
Fig.1 – Product Inventory tab
- Run the Product Bin Card Report, showing the opening value of this product in the Storeroom - as seen in Fig.2
Fig.2 – Product Bin Card Report
From Fig.2 it can be seen that ten cases of product 1906 were received today into the Storeroom with an increased cost of $125.00 per case versus the previous $120.00 per case. The on-hand inventory in the storeroom then recalculates based on quantity received and new cost, as seen in Fig.3.
Please note: The Restaurant and Bar Inventory cost has not changed because the transaction was only recorded in the Storeroom.
Fig.3 - Product Inventory tab
Referencing the Product Bin Card Report, the Purchase Order transaction and price per unit of $20.45 are displayed with the Inventory cost displaying the average cost of the on-hand units - as seen in Fig.4.
Fig.4 – Product Bin Card Report
When the Bar requisitions product 1906 from the Storeroom and the Storeroom posts the transaction, the goods received into the Bar are recorded at the inventory value of the Storeroom, which is $10.00 for FIFO. The Bar’s Product Bin Card Report then shows this update to the inventory value on hand (as seen in Fig.5) as $10.00 for the average inventory cost of all on hand units.
Fig.5 – Product Bin Card Report
Referencing the Product Bin Card Report, the Storeroom also shows this transaction - as seen in Fig.6.
Fig.6 – Product Bin Card Report
Please note: When posting a backdated transaction (such as the highlighted order in Fig.7) the cost will update and recalculate from the posted date forward against inventory on hand.
Fig.7 – Product Bin Card Report
During the physical inventory entry process, if the posted quantity is greater than the calculated system on hand, the average cost of the product will be used to value the additional items; whereas if the posted quantity is less than the calculated system on hand, the FIFO-calculated costs will be used to reduce the closing inventory value.