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FIFO assumes the oldest stock is sold first. Weighted average recalculates a blended cost as stock arrives. Specific identification tracks the actual cost of each unit, which is only practical for serialised or high-value items.
Each produces a different cost of sale and therefore a different profit from identical transactions.
When purchase prices are rising, FIFO reports a lower cost of sale and higher profit than weighted average, because it charges out the older, cheaper stock first.
That difference flows straight to reported profit and to the stock figure on the balance sheet. It is an accounting policy decision, and it should be made deliberately and applied consistently.
None universally. It is a policy decision that must be applied consistently.
Only with good reason, disclosure and advice. It changes reported results.
It is not permitted under many frameworks. Check what applies to you.
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