FIFO, which is stand for “first-in-first-out”, is an inventory costing method which assumes that the first stock bought are the first ones to be sold, and the stock bought later are sold out later. Recently-placed goods that are unsold remain in the inventory at the end of the year. With this inventory valuation approach, the company accounts for the value of inventory received first when sales are made. One of the more common reasons a company chooses FIFO is because it is a more natural straight-line approach since account for the first inventory in as the first items sold. This makes it especially useful when tracking inventory items is simple LIFO, which is stands for “last-in-first-out”, is an inventory valuation method assumes that the last inventories bought are the first one to be sold, and the inventories bought first are sold out last. The goods placed first in the inventory remain in the inventory at the end of the year. Thus, when the accounting in most recently received inventory with first items sold. This actually gives a more realistic look at the market costs of the inventory when sell since it is sold shortly after received. A main reason companies choose LIFO during periods of inflation, though, is that it helps keep current taxable income low since more recent purchases typically have a higher cost basis

The weighted average method uses average costs over the reporting period to calculate the inventory balance. It is a new average cost is calculated after each purchase, then is used to value all subsequent issue and balances. Therefore it shows average cost of issues and average closing stock value as compared to FIFO and LIFO.