This video shows how to use the FIFO (first in, first out) cost flow assumption to calculate Cost of Goods Sold (COGS) and ending inventory for a company that uses a perpetual inventory system.

Companies that use a perpetual inventory system update the inventory account whenever inventory is purchased or sold. Thus, a company using FIFO and a perpetual system would not wait until the end of the period before adjusting the inventory account or recording Cost of Goods Sold; instead, it would record a journal entry to reflect the change in inventory whenever a transaction involving inventory occurs. The use of the FIFO cost flow assumption means that the first units purchased would be the first to flow through Cost of Goods Sold on the Income Statement, whereas the most recent purchases would comprise ending inventory on the Balance Sheet.