FIFO or Moving Average: Which Inventory Costing Method to Choose in Intuit Enterprise Suite

Before you start

• Make the choice before anyone creates an inventory item. Once one exists, the method defaults to FIFO and the option to choose doesn't appear in your account settings.
• Talk to your accountant. The method can't be changed later, and Intuit suggests consulting an accountant or financial advisor if you're not sure.
• Intuit's article doesn't say which user role can set the costing method.
• Intuit's article covers QuickBooks Online and Intuit Enterprise Suite together. Its note about the FIFO default and its FIFO examples name QuickBooks Online; its moving average section explains how Intuit Enterprise Suite calculates the cost.

Step 1: Compare how each method costs a sale

1. 1FIFO (First In, First Out): the first units purchased are treated as the first units sold, and their cost moves from your inventory asset to cost of goods sold (COGS) when you record the sale.
2. 2Moving Average Cost (MAC), also called weighted average: IES works out one average cost for all units of an item, updates it after every purchase, and values each sale at the most recent average.
3. 3How the average is worked out: new average cost = (cost of the stock on hand before the purchase + cost of the new purchase) ÷ (units on hand before the purchase + units in the new purchase).

Intuit says moving average is a good choice for businesses that sell identical, undifferentiated products (such as sand, grains, liquids or mass-produced goods), see purchase prices go up and down, don't need to track which unit was bought first, want COGS and inventory values between FIFO and LIFO when prices rise, and run a perpetual inventory system. Intuit's article doesn't give a matching list for FIFO. Intuit's manufacturing product page also says IES supports FIFO and moving average costing.

Step 2: Work through Intuit's example for each method

1. 1Buy 20 widgets at $6 each. Your widget assets are $120, and widget COGS is $0.
2. 2Buy 30 more at $7 each. Your assets go up by $210, to $330: 20 units at $6 and 30 units at $7.
3. 3Sell 15. Under FIFO, all 15 are valued at $6, so assets drop by $90 and COGS rises by $90. You have 5 units at $6 and 30 at $7, worth $240.
4. 4Sell 20 more. FIFO uses the five $6 units first and values the other 15 at $7, so assets drop by $135 (5x6 + 15x7) and COGS rises by $135. You have 15 units at $7, worth $105, and total widget COGS is $225.

Intuit's article uses different examples for each method. It runs the widget purchases through FIFO only, and it shows moving average with a separate example.

Intuit's own moving average example uses surfboards. It starts with 10 at $200. A purchase of 15 at $210 moves the average to $206.00, and a sale of 8 costs $1,648. A purchase of 12 at $205 moves the average to $205.59, and a sale of 10 costs $2,055.90. January COGS is $3,703.90, with 19 units left. Intuit notes small rounding differences: the ending value shows as $3,906.10 or $3,906.21 depending on where you round.

Step 3: Choose the method before your first inventory item

1. 1Check that the company has no inventory items yet.
2. 2Choose First In, First Out (FIFO) or Moving Average Cost (MAC) in your account settings. Intuit's article says the option appears there, but it doesn't give the menu path or field names.
3. 3If the option isn't in your account settings, an inventory item already exists and the company is on FIFO.

Step 4: Fix a wrong starting quantity or cost

1. 1Go to All apps, then Sales & Get Paid, then Products & services.
2. 2Highlight the item, then select Edit from the Action column.
3. 3Select Starting value.
4. 4Select Got it.
5. 5Enter the item's correct quantity and cost.
6. 6Select Save and Close.

Intuit says a wrong cost or initial quantity at setup leaves the wrong value in the inventory asset account. This corrects the starting value. It doesn't change the costing method.

If something doesn't look right

• There's no option to choose a costing method: an inventory item was created first, so the company defaulted to FIFO. The method can't be changed later.
• A transaction report shows two COGS lines for one invoice: that's FIFO working as intended. When a sale draws on two costs, the transaction report shows a line for each, and totals are correct. In Intuit's example, a 20-unit sale shows a $30 line and a $105 line.
• Moving average values are a few cents off: Intuit's own example shows small differences from rounding the average to two decimal places.
• Inventory asset value was wrong from the start: correct the item's starting quantity and cost with Starting value (Step 4).

Where Intuit Enterprise Suite leaves the work to you

• The choice is permanent. It has to be right before the first inventory item is created.
• Creating an inventory item before choosing puts the company on FIFO.
• Intuit's article doesn't give the menu path for the setting.
• Intuit leaves the choice to you. If you're not sure, it points you to an accountant or financial advisor.
• LIFO isn't one of the options. Intuit's article mentions it only for comparison.

How Logistify helps

Logistify doesn't choose or change your costing method, and it doesn't post inventory costs. Its Sales Order Service enters customer orders into Intuit Enterprise Suite as sales orders, and a person reviews exceptions; IES then costs each sale with the method you chose. To see how an order becomes an invoice, read how to create a sales order and turn it into an invoice.