What are FIFO and LIFO?

When you buy the same product several times at different prices, your stock is a mix of cheaper and dearer units. When one sells, which cost goes to the sale? FIFO says the oldest units sold first, so the oldest cost goes to cost of goods sold and the newest cost stays in stock. LIFO says the newest units sold first, so the most recent cost goes to COGS and the oldest stays on the books.

The choice changes your numbers when prices move. With rising prices, FIFO gives lower COGS, higher profit and a higher stock value; LIFO gives higher COGS, lower profit and a lower stock value. Over the full life of the stock the totals are the same, but the timing of profit, and of tax on it, differs. A third method, weighted average cost, uses the average of all units on hand.

Which you may use depends on where you file. In Canada, LIFO is not accepted for tax and is not allowed under the accounting standards most businesses follow, so Canadian businesses use FIFO or average cost. In the US, LIFO is allowed for tax under specific rules. FIFO also matches how most shops physically rotate stock, which makes it the usual choice for small businesses. Ask your accountant before you choose, because changing later is not simple.

SeroPOS asks for the accounting method when the business is set up and keeps it in the back office under Business Settings, then Business, as the stock accounting method (FIFO or LIFO). Purchases record each receipt at its own cost, and the Profit / Loss and Stock reports value stock and COGS by the method you chose.