 FIFO inventory valuation which stands for first in first out results in the oldest purchases being recorded as costs of goods sold and The most recent purchases remaining in any inventory Recall under the periodic inventory tracking system. We don't track the purchases and sales of Inventory through the inventory account So the revenue entry is all that is recorded when the sale occurs Therefore costs of goods sold in ending inventory valuation are determined only at the end of the month. Let's look at an example Let's assume the following inventory data March 1st beginning inventory is 200 units at a cost of $10 each March 4th. We purchased an additional 300 units at $20 each March 10th. We sold 400 units at $50 each now That's the retail price not the cost March 20th. We purchased an additional 500 units at $30 each March 25th. We sold 300 units at a price of $50 each Finally March 30th. We purchased a hundred units at $40 each So with this data and using FIFO let's determine the value of ending inventory and the amount of cost of goods sold That should be recorded Since inventory isn't accounted for after each transaction We need to use the costs of goods sold model to determine the value of costs of goods sold and ending inventory The cost of goods sold model is beginning inventory plus purchases that equals the goods available for sale From that we can subtract ending inventory to arrive at costs of goods sold We could also subtract the units sold to arrive at ending inventory This is important to note because sometimes the units sold are given to us and not the ending units While other times it's the ending units that are given and not the units sold However in real life we know the ending units of inventory because we physically counted them So we take the data from our problem and put it into the costs of goods sold model I've Chose to solve for ending inventory because we were given the units sold So we have 1,100 units available for sale with a total cost of $27,000 We know we sold 700 units. So our ending inventory must be 400 units So let's figure out which 700 units we sold using FIFO But before we do that, there's a very important concept. We need to be aware of using the periodic methods We assume that all goods are available for sale So I know and you know there isn't any way that the March 30th purchase could have been sold on March 10th But we ignore that fact when using the periodic method Now back to solving this example So which 700 units did we sell? Well FIFO stands for first in first out So we sold all 200 units of the beginning inventory leaving zero We sold all 300 units of the March 4th purchase leaving zero and We sold 200 units from the March 20th purchase leaving 300 units in inventory So we can account for all 700 units sold and the cost of those units is $14,000 Which is $2,000 plus $6,000 plus the $6,000 Let's plug that amount into the cost of goods sold model since the goods available for sale is $27,000 We can determine that the value of the ending in week excuse me We can determine the value of the ending inventory by subtracting the costs of goods sold of $14,000 Therefore ending inventory is $13,000 We could have proved this by using the ending inventory units as well since 400 units remain in ending inventory and those units come from 300 units remaining from the March 20th purchase and 100 units from the March 30th purchase You can see that those total the 13,000 and that matches what we've already calculated