Inventory glossary

What is FIFO?

FIFO (first in, first out) is an inventory method where the oldest stock you bought is the first stock you sell or use.

FIFO matters for two reasons: it keeps products moving before they go stale or out of season, and it affects how you calculate the cost of what you sold. If you bought inventory at different prices over time, FIFO assumes the earliest, usually cheaper, batch is sold first, which changes your reported profit.

For a small store, use FIFO by physically shelving new stock behind old stock, so staff naturally grab older units first. For perishable or trend-sensitive goods like food, cosmetics, or seasonal apparel, this stops you from holding stock that expires or becomes unsellable while newer batches sell out ahead of it.

Example

A candle store buys 100 units in January at $5 each, then 100 more in March at $6 each. In April it sells 120 units. Under FIFO, the cost of those 120 units is: 100 units x $5 + 20 units x $6 = $500 + $120 = $620. The remaining 80 units in stock are valued at the March cost of $6 each, or $480.

Common mistakes

  • Confusing FIFO with physical stock rotation when the accounting system still tracks cost differently.
  • Not applying FIFO consistently across accounting periods, which distorts gross margin comparisons.
  • Assuming FIFO and LIFO give the same profit figure when prices are rising or falling.

FIFO and SteadyShelf

SteadyShelf does not handle cost accounting methods like FIFO, but accurate lead times and order timing from SteadyShelf help older stock sell through before new purchase orders arrive.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

LIFO · Inventory valuation · Weighted average cost · Cost of goods sold · Shelf life

Full inventory glossary

FAQ

Does FIFO mean I have to sell my literal oldest boxes first?

Not necessarily in the accounting sense, but for perishable or seasonal goods it is good practice to also rotate physical stock so the oldest units sell first.

Is FIFO better than LIFO for a small Shopify store?

Most small stores use FIFO because it matches how physical goods actually move and it is simpler to apply consistently, especially with perishable or seasonal items.

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