Stock Valuation (FIFO Method)
Stock Register uses the FIFO (First In, First Out) method to calculate your stock value and cost of goods sold. FIFO means that when you sell an item, the cost is calculated based on the oldest purchase price first. For example, if you bought 10 units at ₹100 and later 10 units at ₹120, and then sell 5 units, the cost of those 5 units is taken as ₹100 (the older purchase price). This ensures your profit calculations are accurate and reflect the actual cost of the goods you sold. FIFO is the most widely accepted inventory valuation method and is recommended for tax compliance and accurate financial reporting.
Steps
- How FIFO works: When you sell items, Stock Register automatically picks the cost from the oldest purchase batch first. You do not need to do anything manually — it happens behind the scenes.
- Example: You purchase 10 units at ₹100 on Jan 1, then 10 units at ₹120 on Jan 15. When you sell 12 units on Jan 20, the cost is calculated as: 10 units × ₹100 (first batch) + 2 units × ₹120 (second batch) = ₹1,240 total cost.
- Stock Value: Navigate to Inventory > Stock to see the current stock value. The value shown is calculated using FIFO — it reflects the actual purchase cost of the remaining stock.
- Profit Calculation: When you view the Profit & Loss report or Sales Bill-wise Profit, the cost of goods sold is calculated using FIFO. This gives you an accurate profit margin for each sale.
- Stock Adjustments: When you make stock adjustments (adding or removing stock), the FIFO chain is maintained. Adjusted-out stock removes from the oldest batch first.
- Stock Transfers: When you transfer stock between stores, the FIFO cost moves with the items. The receiving store gets the stock at the same cost basis as the sending store.
Tip: FIFO gives the most accurate profit when purchase prices change over time. If you buy the same item at different prices, your profit reports will correctly reflect the actual cost of the goods sold, not an average or latest price.
Common Questions
FIFO stands for First In, First Out. It means the oldest purchased stock is assumed to be sold first. Stock Register uses FIFO because it is the most widely accepted inventory valuation method, gives accurate profit calculations when purchase prices change, is recommended by accounting standards, and is required for tax compliance in many jurisdictions.
FIFO determines the cost of goods sold (COGS) in your profit reports. When you sell an item, the cost is taken from the oldest purchase batch. If your purchase prices have increased over time, FIFO will show a lower COGS (using older, cheaper prices) and therefore a higher profit. This accurately reflects the true cost of the specific goods that were sold.
Yes, use the Item Ledger report (under Reports > Item Reports) to see the complete history of purchases, sales, and running stock for any item. The ledger shows how the cost flows through each batch based on FIFO, so you can trace exactly which purchase batch was used for each sale.
When a customer returns items (sales return), the items are added back to stock at their original FIFO cost — the same cost that was used when the sale was recorded. This ensures your stock value and profit calculations remain accurate after returns.
Yes, FIFO is maintained per store. Each store has its own FIFO queue based on purchases and stock transfers received at that store. When you transfer stock between stores, the FIFO cost travels with the items.
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