FIFO Perpetual in TallyPrime: 2 Example + Practical Application

FIFO Perpetual in TallyPrime is an inventory valuation method where the “First In, First Out” principle is applied continuously, in real-time.

Every time a transaction occurs (such as purchases or sales), TallyPrime automatically updates the inventory costs based on the FIFO principle.

1. Detailed Example of FIFO Perpetual in TallyPrime:

Let’s break down an example:

1. Initial Purchase:

• On Day 1, you purchase 50 units at ₹10 per unit.
• On Day 3, you purchase 50 units at ₹12 per unit.

2. Sale Transaction:

• On Day 5, you sell 60 units.

With FIFO Perpetual:

• First 50 units from the Day 1 purchase (₹10 per unit) are used up first.
• The remaining 10 units will come from the Day 3 purchase (₹12 per unit).

This means:

• Cost of Goods Sold (COGS):
  • (50 units x ₹10 = ₹500)
  • (10 units x ₹12 = ₹120)
  • Total COGS = ₹620
• Remaining Inventory:
  • 40 units from the Day 3 purchase are still in stock, valued at ₹12 per unit.

2. Benefits of FIFO Perpetual in TallyPrime:

1. Real-Time Cost Accuracy:

Every transaction updates the inventory valuation immediately, providing accurate cost information at any time.

2. Improved Financial Reporting:

This method ensures that financial reports reflect the most current inventory costs, leading to more accurate profit calculations and financial analysis.

3. Alignment with Actual Inventory Flow:

FIFO Perpetual closely matches the physical flow of goods in many businesses, making it particularly useful for industries where goods are sold or used in the order they are received, such as retail or manufacturing.

3. Practical Application:

1. Retail Businesses:

Useful in environments where older stock needs to be sold first, like grocery stores, to ensure that inventory does not become obsolete or spoiled.

2. Manufacturing:

Ensures that older raw materials are used first, aligning with production cycles and reducing waste.

4. Conclusion:

FIFO Perpetual in TallyPrime is an effective inventory valuation method that provides continuous, real-time updates to inventory costs.

This method is particularly beneficial for businesses that need accurate, up-to-date financial information and want to ensure that their inventory management aligns with the actual flow of goods.