Inventory6 min read
WAC vs FIFO: choosing an inventory costing method in the UAE
Your costing method changes your reported profit and your balance sheet. How weighted-average and FIFO differ, and when each makes sense.
By myInvoice.ae Team
If you hold stock, the way you value it directly affects your cost of goods sold, your gross profit, and the inventory figure on your balance sheet. Two methods dominate: weighted-average cost (WAC) and first-in-first-out (FIFO).
Weighted-average cost (WAC)
WAC blends the cost of all units into a single running average. Buy 100 units at AED 10 and 100 at AED 12, and every unit is now valued at AED 11. It's simple, smooths out price swings, and is easy to audit.
First-in-first-out (FIFO)
FIFO assumes the oldest stock sells first. In a rising-price environment, cost of goods sold reflects older, cheaper costs — so reported profit and closing inventory value tend to be higher than under WAC.
Which should you choose?
- Choose WAC for simplicity and stable reporting when items are interchangeable.
- Choose FIFO when you track perishable or dated stock and want closing inventory at recent costs.
- Whichever you pick, apply it consistently — switching methods mid-stream distorts comparisons.