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One thing to consider with this method is that revenue and cost matching don't always match up. Managers can even access real-time depletion and inventory counts instantly through modern inventory management software. Because this method corresponds inventory with its original cost, the calculated value of remaining goods is most accurate. Of all inventory valuation methods, first-in, first-out is the most reliable indicator of inventory value for restaurants. FIFO directs restaurants to use older, lower-priced goods first and to leave the (theoretically) more expensive goods as inventory.Īltogether, this adds up to a lower cost of goods sold and higher net income. But for those using the first-in, first-out method, the financial hit is minimized. With supply chain issues and fluctuating food costs, restaurants can find themselves in an inflationary environment. FIFO makes sense because it matches the actual flow of food in the kitchen. Chefs and back-of-house staff will use the ingredients purchased earliest, with the nearest expiration date, in order to avoid spoiling or wasting inventory.

The first-in, first-out method is best for businesses where inventory has a short demand cycle or is perishable, which is most prominent in the restaurant industry. As a result, your remaining inventory consists of your most recent purchases and is accounted for at the goods' current cost. This technique assumes that the goods you purchase first are the goods you use (and sell) first. It's term that that originates in financial accounting but the concept also able to inventory management. FIFO stands for first-in, first-out (FIFO), a popular principle of inventory valuation that many restaurants use.