FIFO vs. Average Cost: What Is the Difference in Inventory Valuation?

FIFO assumes that the oldest inventory costs are assigned to goods sold first. Weighted average calculates a blended unit cost based on the costs and quantities available. When purchase prices rise, the two methods may produce different cost-of-goods-sold figures and ending inventory values.

The appropriate method depends on the business and applicable accounting standards, and should be applied consistently. Try Cash Cloud for free to explore inventory tracking and reporting tools.