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Therefore, you'll have - like coal, sand, stone or bricks. For perishable goods or products with a life cycle or life span, it always has to be FIFO - or you'll lose money.
When one batch comes into the warehouse, it sits on top of the old batch and the newest is the first to be used. For other products, you might need to get together with your accountant or whoever takes care of the finances to work out if LIFO is the best way to move stock in and out of your warehouse.
The calculation of inventory cost is an important part of filing your business tax return.
Like other legitimate business costs, the cost of the products you buy to resell can be deducted from your business income to reduce your taxes.
That can be perishable goods like food, products that have a cycle like fashion, or products that could become obsolete like anything to do with technology.
With these, you definitely want to move whatever comes into your warehouse first.
This method also comes in handy when you don't have enough space in your warehouse to really rotate the batches - if space is tight and your products don't have a shelf-life, why give yourself the extra hassle? Whichever one you choose, make sure the stock layout in your warehouse reflects this so it's quicker and easier to keep things flowing.
Well, it's not really the epic battle I'm describing, but it is a question that comes up.
FIFO, which stands for "first-in, first-out," is an inventory costing method which assumes that the first items placed in inventory are the first sold.
Thus, the inventory at the end of a year consists of the goods most recently placed in inventory.
FIFO and LIFO are well-known when it comes to accounting, but they can also be used for inventory management.
But first it's important to understand what they are.
And that's something business owners are always happy to hear!