# FIFO, LIFO or average cost: which costing method suits your shop

Source: https://ood.bg/en/blog/fifo-lifo-or-average-cost
Published: 2026-09-17 · Updated: 2026-09-17

## TL;DR
- FIFO issues the oldest deliveries first; average cost uses the weighted value.
- With rising prices, FIFO shows a higher margin than average cost.
- IAS 2 does not allow LIFO — check your accounting policy.

## Key facts
- **Methods in ood.bg:** FIFO · LIFO · average
- **IAS 2:** no LIFO
- **Decided by:** accounting policy

The costing method decides at what cost sold goods leave the warehouse. FIFO issues the oldest deliveries first, average cost uses the weighted value of the stock, and LIFO uses the latest deliveries.

## What do the methods look like with numbers?

You hold 10 pcs at €5.00, then receive 10 pcs at €6.00. You sell 10 pcs at €9.00.

| Method | Cost of sales | Margin |
|---|---|---|
| FIFO | €50.00 | €40.00 |
| Average cost | €55.00 | €35.00 |
| LIFO | €60.00 | €30.00 |

With rising prices FIFO shows the highest margin, LIFO the lowest, and average cost sits in between.

## Which method is allowed?

The international standard IAS 2 allows FIFO and weighted average cost, but not LIFO. The method is part of the company's accounting policy — choose it with your accountant and don't change it without a reason.

## How does it work in ood.bg?

You choose the method per warehouse — FIFO, LIFO or average cost — with an allowed price deviation. Margin and turnover reports use the same method. See [warehouses in ood.bg](https://ood.bg/en/features#warehouses) or ask the [AI assistant](https://ood.bg/en/ai) “Margin by item”.

## FAQ

### Which method should a small shop choose?

Usually FIFO or average cost. It is part of the accounting policy — agree it with your accountant.

### Is LIFO allowed?

IAS 2 does not allow LIFO. If the company applies IFRS, use FIFO or weighted average cost.

### Can I change the method later?

A change is a change in accounting policy and must be justified; in ood.bg the method is set per warehouse.

## Sources
- [IAS 2 Inventories (IFRS Foundation)](https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/)