FIFO in Business Central: the plain-English guide

First In, First Out – FIFO

FIFO (“First In, First Out”) in Business Central values each shipment at the cost of the oldest available receipt. It’s simple, IFRS-friendly, and ideal for fast-moving stock.

The “bad” explanation (on purpose)

Imagine your stockroom is a conga line of biscuits. The biscuits that danced in first must shimmy out first, even if there’s a shiny new pack winking at you from the back.

Business Central is the dance marshal: every time you ship, it grabs the oldest biscuits and says, “Off you pop!” If you sneak in a late delivery or forget who brought the biscuits, the marshal blows a whistle and re-counts the crumbs. That re-count is FIFO’s little tidy-up, making sure biscuit maths matches the biscuit reality.

The Professional Explanation

What FIFO means in Business Central

FIFO (First In, First Out) is an inventory costing method where outbound entries (shipments, consumption, negative adjustments) are costed using the oldest remaining inbound cost layers (receipts, positive adjustments, output).

The posting date determines the sequence. This produces a realistic cost flow for fast-moving items, aligns with IFRS/UK GAAP (unlike LIFO), and typically increases reported profit in inflationary periods because older—usually cheaper—layers are relieved first.

How Business Central implements FIFO

• Item setup: On each Item, set Costing Method = FIFO.

• Cost layers & applications: Each receipt creates/updates a cost layer. When you post a shipment, Business Central automatically “applies” that shipment to the oldest open layer(s). These links are visible as Applied Entry-to-Entry records.

• Adjust Cost – Item Entries: Because costs can arrive or change later (e.g., freight via Item Charges, late invoices), schedule Adjust Cost – Item Entries (and enable Automatic Cost Adjustment and Automatic Cost Posting) to keep COGS and inventory valuation accurate through Value Entries.

• Returns & corrections: Use Appl.-to Item Entry on returns to reverse the exact outbound or inbound where required, preserving correct cost.

• Landed costs: Post freight, duty, and fees with Item Charges to the original receipts; the next cost adjustment flows these into inventory and COGS.

• Backdating: If you post a receipt with an earlier date than shipments already posted, the subsequent cost adjustment will re-apply layers so COGS reflects the new chronological reality.

When FIFO is a good fit

• High-volume, fast-moving SKUs (distribution, retail, eCommerce).

• Environments needing clear audit trails and IFRS compliance.

• Price-volatile markets where you want the oldest costs relieved first.

Watch-outs for SMEs

• Not running cost adjustment regularly leads to misleading margins and aged inventory values. Schedule it daily (or at least overnight).

• Mixed costing methods across similar items complicate analysis—be deliberate.

• Late Item Charges (freight/duty) posted after sales will be pushed to COGS on adjustment; that’s correct, but expect margin “wiggles.”

• Posting date discipline matters. Train teams to use correct dates on receipts, shipments, and returns.

• Serial/lot needs: If you must cost by exact serial/lot, consider Specific costing; FIFO will still follow date order even when tracking is present.

Reporting you’ll rely on

• Inventory Valuation and Inventory to G/L Reconciliation for month-end.

• Item Ledger/Value Entries to trace cost applications layer by layer.

• Inventory Posting Groups ensure values end up in the right G/L accounts.

Bottom line
Set the Item to FIFO, enable and schedule cost adjustment, post landed costs correctly, keep posting dates clean, and your COGS and stock valuation will stand up to scrutiny and decision-making.

FAQs – FIFO in Business Central

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