# Average Cost vs FIFO in QuickBooks Desktop: Which Does It Use, and What Changes If You Switch?

> QuickBooks Desktop values inventory at average cost by default. Enterprise with Advanced Inventory can switch to FIFO. What changes when you do.

- URL: https://logistify.ai/guides/quickbooks-desktop/average-cost-vs-fifo/
- Section: QuickBooks Desktop Guides, Inventory
- Applies to: QuickBooks Desktop Enterprise, Premier, Pro
- Steps checked against: Intuit's QuickBooks Desktop help articles, updated August and October 2026
- Updated: 2026-10-19

**Short answer:** QuickBooks Desktop Pro, Premier and Enterprise use average cost by default. FIFO needs Enterprise with Advanced Inventory, under Edit > Preferences > Items & Inventory > Company Preferences > Advanced Inventory Settings > FIFO. Switching recalculates every inventory transaction from the start date you pick. That changes inventory valuation reports, the Balance Sheet and cost of goods sold on the Profit and Loss. Involve your accountant before you switch.

## Before you start

- FIFO is part of Advanced Inventory, which you buy or subscribe to for QuickBooks Desktop Enterprise. Pro and Premier stay on average cost.
- Talk to your accountant before you switch. The change restates inventory value and cost of goods sold from the start date, so the date is a decision for them.
- Back up the company file and save your current inventory, Balance Sheet and Profit and Loss reports, so you can compare before and after.
- Advanced Inventory Settings grayed out after you bought it? Go to Help > Manage my License > Sync License Data Online, then close and reopen QuickBooks.

For everything else in the add-on, see [What Advanced Inventory adds in QuickBooks Desktop Enterprise](https://logistify.ai/guides/quickbooks-desktop/advanced-inventory-quickbooks-enterprise/).

## How average cost works in QuickBooks Desktop

Under average cost, QuickBooks keeps one average cost for each item. An item's total value is its average cost times the quantity in stock. When you sell, QuickBooks moves that average cost per unit out of Inventory Asset and into cost of goods sold.

Selling stock you don't have breaks this. QuickBooks costs the sale at the average of the stock you had, or at the Cost on the item, or at $0 if there's neither. The next bill then posts a correction to cost of goods sold. We cover the cleanup in [How to fix an inventory valuation mismatch](https://logistify.ai/guides/quickbooks-desktop/fix-inventory-valuation-mismatch/).

## How FIFO works in QuickBooks Desktop Enterprise

FIFO means first in, first out. QuickBooks assumes the first units you received are the first ones you sold. Each sale is costed from your oldest stock, so what stays on the shelf carries your most recent costs.

|   | Average cost | FIFO |
| --- | --- | --- |
| Cost per unit used for the sale | $4.50, the average of all 200 units | $4.00, from the first 100 received |
| Cost of goods sold for 100 units | $450 | $400 |
| Value of the 100 units left | $450 | $500 |

*Illustration only: you buy 100 units at $4.00, then 100 at $5.00, then sell 100. Total value is $900 either way. Only the split between stock and cost of goods sold changes.*

## Step 1: Prepare before you switch

1. Agree on the FIFO start date with your accountant.
2. Run Reports > Inventory > Inventory Valuation Summary, plus the Balance Sheet and Profit and Loss for the periods after that date. Save copies.
3. Back up the company file.

## Step 2: Turn on FIFO

1. Go to Edit > Preferences.
2. Select Items & Inventory, then the Company Preferences tab.
3. Select Advanced Inventory Settings, then open the FIFO tab.
4. Select Use FIFO starting on and enter the start date.
5. Select OK, then OK again to close Preferences.

## Step 3: Check what changed

QuickBooks recalculates every inventory transaction from the start date you entered. Intuit names three reports that change:

- Inventory valuation reports.
- The Balance Sheet.
- The Profit and Loss, through cost of goods sold.

Rerun the reports you saved in Step 1 and walk through the differences with your accountant.

## Switching back to average cost

Clear Use FIFO starting on in the same FIFO tab. QuickBooks goes back to calculating inventory value at average cost. Review the same reports with your accountant afterwards.

## Things to know before you choose

- You can start FIFO on any date, but QuickBooks recalculates everything from that date forward.
- Negative inventory can cause incorrect cost of goods sold. Clean it up before you judge either method.
- Costing is only as good as the transactions behind it. Purchases entered late, or without items, throw the numbers off.
- If you move to QuickBooks Online later, Intuit's migration article says both FIFO and moving average cost carry over.

If a move is on the table, see [How to migrate from QuickBooks Desktop to QuickBooks Online](https://logistify.ai/guides/quickbooks-desktop/migrate-quickbooks-desktop-to-online/).

## Where QuickBooks Desktop leaves the work to you

- Choosing a method and a start date is an accounting decision for you and your accountant.
- Someone has to compare reports before and after the switch and explain the differences.
- FIFO needs Advanced Inventory in Enterprise, so Pro and Premier users have to change editions to get it.
- Each purchase has to be entered with its items and on time, or neither method gives the right cost.

## Frequently Asked Questions

### Does QuickBooks Desktop use FIFO or average cost?

Average cost by default. FIFO is an option in QuickBooks Desktop Enterprise with Advanced Inventory.

### Can QuickBooks Desktop Pro or Premier use FIFO?

No. FIFO is part of Advanced Inventory, which is an add-on for QuickBooks Desktop Enterprise.

### Does switching to FIFO change my past reports?

Yes, from the start date you choose. Inventory valuation, the Balance Sheet and cost of goods sold on the Profit and Loss are recalculated.

### Can I switch from FIFO back to average cost?

Yes. Clear Use FIFO starting on in Advanced Inventory Settings, and QuickBooks returns to average cost.

## Sources

- [Intuit: FIFO Options in QuickBooks Desktop Enterprise](https://quickbooks.intuit.com/learn-support/en-us/help-article/product-preferences/fifo-options-quickbooks-desktop-enterprise/L3kDpI5Aj_US_en_US)
- [Intuit: Turn on Advanced Inventory](https://quickbooks.intuit.com/learn-support/en-us/help-article/feature-preferences/turn-advanced-inventory/L6nkAoZzK_US_en_US)
- [Intuit: Fix negative inventory issues in QuickBooks Desktop](https://quickbooks.intuit.com/learn-support/en-us/help-article/inventory-management/fix-negative-inventory-issues-quickbooks-desktop/L7LoLuVSD_US_en_US)
- [Intuit: Adjust your inventory quantity or value in QuickBooks Desktop](https://quickbooks.intuit.com/learn-support/en-us/help-article/inventory-adjustment/adjust-inventory-quantity-value-quickbooks-desktop/L8p8OoeGs_US_en_US)
- [Intuit: Learn how features and data transfer from QuickBooks Desktop to QuickBooks Online](https://quickbooks.intuit.com/learn-support/en-us/help-article/import-export-data-files/expect-switch-quickbooks-desktop-quickbooks-online/L0dEyNosU_US_en_US)