FIFO and LIFO Method with illustration

What is FIFo ?

FIFO stand for first in and first out. It means if firm started buying and selling of inventory a firm  must follow the rate of first inventory (  first inventory rate taken for purchase and first rate taken for sale) This is  called FIFO method. For you have firm you selling an item you see the first rate of your inventory now you have two rates 5 , 6 so your first rate is 5 multiple the unit sold with first rate for instance units are 125 now we multiple these unit with first rate it will look like (5×125).

LIFO 

LIFO stand for Last in first out. so as the name suggest last out  if  a firm sold any unit if commodity then it must have to multiple that units sold with last rate. This method is more useful and popular as compared to FIFO. Because it will give your organization to many advantages e.g in prices change etc.

Now from definition you notice the deference  between these two method. Just remember these two method are used in selling or issuing of pricing material. I going to explain full procedure for you in this post with illustration in this one illustration both method I explaining. So you would be able to solve any type of questions.

Understanding layout 

Make sure that your layout should prepared well. So how you can prepare this layout it is easy you need  five main columns Date, description , Receipt , issued  and balance. Now in last three columns ( Receipt , issued and balance ) create three small column in each these are unit, per unit cost or rate and amount. After that put your entries into this layout
 So we move towards example solved problems.

Following entries are occurred during the month of March  2018 of a company named Johnson Co.
Date 1. Beginning inventory of Johnson co is  100 units @ of 10 each.
3. Johnson co  purchased  material 150 @ of 5.
7. Johnson company issues or sold  70 units.
9. Issued 20 unit more.
11. Johnson company purchased material 30 units  @ 6.
13. Johnson co issued 60 units.
Now we prepare or solve first these entries on FiFo Method and after that full explanation written on bottom how I solve these entries according to FiFo method.

Explanation

In first entry nothing you have to do just put this entry into balance columns. In 2nd entry company purchase material in purchasing of material you have to use FIFO or LIFO method only use FIFO and LIFO method in issued or sold units. In this entry we have separate rate don't add this rate or plus this rate with your first balance rate because this is separate rate so put this entry 1st in purchase columns and then balance. No you have two rate one is 10 and 2nd is 5. In 3rd entry Johnson company issued or sold 70 units. We are in FIFO method so we use first rate which 10. Fourth entry company again issued 20 units similarly multiple these units with first rate because we have 30 units still remaining in balance's first rate so we subtracted these 20 units from first rate. Fifth entry company purchased some material which 30 units @ of 6 each. In sixth entry  and last entry company issued 60 units. Now pay attention this entry is confusing, so what we did here we only 10 units remain in first rate of balance and we have 60 units sold first we divide 60 units into two parts one parts is on first rate which 10 and other is on 2nd rate which five. So this is explanation of all entries we made.
Now same question solved example of LIFO method

Explanation ;
In this illustration we take same question for LIFO method little changes in this method in FIFO we use first rate for issuing material while here we use last rate for issuing material.
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