Each industry is different in determining costs of goods sold or cost of services rendered. Retail uses two distinct methods to calculate costs of goods sold. The first is called ‘Specific Identification’ whereby each item sold is specifically identified to its recorded cost. The second method is referred to as ‘Inventory Adjustment’ format. In this method, a beginning and ending balance is recorded along with the purchases throughout the year.
First In First Out is a variation of the inventory adjustment method of accounting for cost of goods sold in retail. It assumes that the inventory rotates in a consistent manner through the warehouse and on the sales floor. The value of the ending inventory is generally determined using the latest purchase price of the items sold.