Yes, it is accurate that
FIFO (First-In, First-Out) typically produces the same results under both Periodic and Perpetual inventory systems.
Here’s why:
- FIFO’s core assumption: FIFO assumes that the first goods purchased or produced are the first ones sold, meaning the oldest inventory costs are recognized first.
- Consistency across systems: This assumption holds true regardless of whether you are using a perpetual inventory system (real-time tracking of inventory with each transaction) or a periodic inventory system (updating inventory records and calculating Cost of Goods Sold – COGS – at the end of a period).
- Same COGS and ending inventory: Since FIFO assigns the oldest costs to the units sold in both systems, the resulting Cost of Goods Sold (COGS) and the value of the ending inventory will be the same.
In simpler terms:
Think of it like a bakery selling bread. They want to sell the bread they baked first to ensure freshness. Whether they track each loaf sold individually (perpetual) or count their remaining bread at the end of the day (periodic), they will still prioritize selling the oldest bread first (FIFO). This means the cost they assign to the bread sold will be the cost of the first loaves baked, regardless of the inventory system used.
In contrast:
Other inventory cost flow assumptions, such as LIFO (Last-In, First-Out) or weighted average, may produce different results under periodic and perpetual systems. This is because their assumptions about which inventory is sold first (newest for LIFO, or an average for weighted average) are more sensitive to the timing of purchases and sales, which are tracked differently in perpetual and periodic systems