FIFO (first-in, first-out) and LIFO (last-in, first-out) are inventory cost-flow assumptions. FEFO (first-expiry, first-out) is a physical picking policy. A cost-flow assumption assigns costs to goods sold and goods remaining; a picking policy identifies the eligible physical stock to use next. They answer different questions.
Compare the methods
| Method | Purpose | Rule |
|---|---|---|
| FIFO accounting | Cost assignment | Oldest purchase costs enter COGS first |
| LIFO accounting | Cost assignment | Newest purchase costs enter COGS first |
| Weighted average | Cost assignment | Blend eligible acquisition costs across available units |
| FIFO picking | Physical rotation | Use the oldest eligible receipt first |
| FEFO picking | Physical rotation | Use the eligible, unexpired lot with the earliest expiry first |
An expired, quarantined or otherwise unsuitable lot is not made usable by a FEFO rule. Follow the product's actual handling instructions and the business's approved release and storage procedures.
The IFRS Foundation's IAS 2 summary lists FIFO or weighted average for ordinarily interchangeable inventory and specific identification for non-interchangeable items. FIFO is therefore not the only IFRS option. LIFO is not an IAS 2 cost formula. Select and maintain the accounting method with the accounting owner under the framework that applies to the business.
A cost-flow example
Assume the following purchases of one interchangeable item, followed by a sale of 140 units. The example isolates cost assignment; there are no returns, taxes or other acquisition charges.
| Batch | Units | Cost per unit | Total |
|---|---|---|---|
| 1 | 100 | $5.00 | $500 |
| 2 | 80 | $5.50 | $440 |
| 3 | 60 | $6.00 | $360 |
| Available | 240 | $1,300 |
FIFO: sell the oldest costs first: 100 × $5 + 40 × $5.50 = $720 COGS. Remaining cost is 40 × $5.50 + 60 × $6 = $580.
LIFO illustration: assign the newest costs first: 60 × $6 + 80 × $5.50 = $800 COGS. Remaining cost is 100 × $5 = $500.
Periodic weighted average: $1,300 / 240 = $5.416666… per unit. COGS is 140 × that unrounded average = $758.33; ending inventory is $541.67.
All three reconcile to the same $1,300 acquisition cost. The different cost assignments do not change which goods were physically shipped or the purchase cash paid. They also do not establish a tax benefit; tax treatment is a separate, jurisdiction-specific question.
Why receipt date and expiry date differ
Suppose lot A arrives on Monday and expires on the 20th. Lot B arrives on Thursday and expires on the 15th. Provided both lots are released for use and meet the required remaining shelf life, FEFO selects B first; FIFO picking selects A first.
The decision needs more than a date sort. Check location, lot identity, usable quantity, expiry, quarantine status and the customer's required remaining shelf life. A later-expiring lot may be the only eligible one for a particular order.
A daily decay rate estimates quantity loss for planning. It does not calculate a safe use-by date and cannot replace lot eligibility checks. Likewise, a high annual usage value from ABC analysis does not decide a product's handling or release rules.
Receiving data and accounting handoff
Receiving should distinguish ordered, delivered, accepted and rejected quantities. Where the workflow requires lot and expiry information, record it against the relevant received quantity and retain supporting documents. A later partial receipt can have a different lot, expiry or accepted price.
LineNow's inventory purchasing workflow connects purchase orders, supplier changes, received quantities and costs. To assess fit, demonstrate a partial receipt, a price change and a later correction. Verify how the business's warehouse system chooses eligible stock and how its accounting system values inventory and recognizes COGS. Sending a bill does not by itself establish FIFO cost assignment.
A practical division of responsibility
The receiving team captures what arrived and what was accepted. The operational owner defines which lot can be used. The accounting owner defines and reconciles cost assignment. Connecting their records makes exceptions easier to trace while preserving those separate decisions.
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