FIFO (first in, first out) is a method of calculating the value of inventory sold and on-hand. When you turn FIFO on, QuickBooks calculates inventory values based on the assumption that the first inventory items received are the first sold.
To turn on FIFO
Choose Edit > Preferences.
On the left side of the Preferences window, click Items & Inventory.
Click the Company Preferences tab.
Click the Advanced Inventory Settings button.
In the Advanced Inventory Settings window, select Use FIFO starting on and choose a date. QuickBooks recalculates all inventory-related transactions starting on the date you enter.
Note: You can start tracking FIFO on any date. If you later decide to turn off FIFO, click to clear the Use FIFO starting on checkbox, and QuickBooks will once again calculate inventory value using the average cost method.
In the Preferences window, click OK.
Note: You can turn FIFO off at any time.
Turning on FIFO changes the following reports:
Inventory valuation reports
Balance sheet reports
Profit and Loss reports (cost of goods sold)