Accounting for IGCSE & O level - Final Statements (Section 1 - No. 27)
What are the limitations of the 'first-in, first-out' (FIFO) method?
It can lead to inaccurate cost of goods sold during periods of rising prices.
It is difficult to apply to all types of businesses.
It may overstate profits during periods of inflation.
It requires significant record-keeping
Explication
FIFO leads to a more accurate view of inventory but inaccurate matching of revenue to COGS, and can overstate profits during inflation.