Average Cost to FIFO - The Potential Impact of Converting

There has been a substantial ‘chatter’ in a variety of forums about inventory valuation irregularities that occur when converting a historical file from QuickBooks Desktop, using Average Cost, to QuickBooks Online, using FIFO (First In, First Out).  This article is NOT based upon research into any such specific problems; rather, it examines the concepts of how both cost methodologies are applied in inventory systems using the different methods, and explores how valuation differences, and COGS variations can occur when converting between methods. It further looks at steps that might be taken to force financial statements to balance during conversion from one system to another, and why such steps may then result in a scenario where the underlying ‘item based’ transnational records do not match the general ledger values being reported on the financials.