Note, it took me a few years of attempts, but I was able to build a FIFO cost of goods sold calculator in Excel and Google Sheets. It was not easy and I'm going to explain why spreadsheet software's have such a hard time with this calculation.
Building a first-in-first-out (FIFO) calculator in a spreadsheet can be challenging for a few reasons:
- Lack of native support: Most spreadsheet software, like Microsoft Excel or Google Sheets, is primarily designed for general-purpose calculations and data manipulation, rather than specific inventory or accounting functions like FIFO. As a result, they may not have built-in functions or features that directly support FIFO calculations.
- Complex data structures: FIFO calculations require maintaining a specific order of data based on the time of entry. Spreadsheets are typically designed around tabular data structures, making it difficult to maintain the chronological order of entries without additional customization. This is probably the biggest challenge to overcome, but it is possible.
- Formula limitations: While spreadsheet formulas can handle basic arithmetic and logical operations, performing complex calculations involving dynamic sorting and tracking of entries can be challenging. FIFO calculations often involve dynamically updating and rearranging data, which may require complex formulas or custom scripting, exceeding the capabilities of standard spreadsheet functions.
- Lack of automation: FIFO calculations involve continuous tracking of inventory or transactional data, as well as updating and rearranging entries based on new inputs. Spreadsheets generally require manual intervention to update and maintain the FIFO calculations, making the process time-consuming and prone to human error.
Despite these challenges, it is still possible to build a FIFO calculator in a spreadsheet by utilizing advanced formulas, macros, or scripts. However, depending on the complexity of the calculations and the volume of data, it may be more efficient to use specialized inventory or accounting software that offers native FIFO support or consider developing a custom software solution tailored to your specific requirements.
Article found in Accounting and Finance.
