FIFO or moving average? Inventory valuation in a Swiss SME — what the law requires and what you may choose

Search for inventory valuation online and you quickly land on statutes — mostly German ones. That is dangerous, because German commercial law and the Swiss Code of Obligations are not the same thing. Before you take a method from a guide and apply it, the better question is: what does Swiss law actually require?

The short answer surprises many: the law prescribes no particular valuation method. It sets a value ceiling — and leaves the method to you, as long as you apply it consistently. What that means in practice, and how to choose between FIFO and the moving average, is what we look at here.

The misconception: «The law prescribes a method»

There is a notion in circulation that FIFO or the average are «legally required» or «commercially mandated». For Switzerland, that is not true. The Code of Obligations regulates how high you may at most value your inventory — not with which calculation method you arrive at those costs. That distinction is the key to the whole topic.

What CO Art. 960c actually requires: the lower-of-cost-or-market principle

The governing provision is Article 960c CO. For the subsequent valuation of inventory it requires: if the realisable value — taking into account the costs still to be incurred — is lower than the acquisition or production cost at the balance-sheet date, that lower value must be used. This is the lower-of-cost-or-market principle (German: Niederstwertprinzip): valuation at the lower of the two values.

Inventory in this sense covers raw materials, work in progress, finished goods and merchandise (Art. 960c para. 2 CO). The general ceiling at initial recognition — at most the acquisition or production cost — comes from Art. 960a CO.

Important: none of these provisions mentions «FIFO» or «moving average». At this point, the law is method-neutral.

Where the method comes in

If you always bought at the same price, there would be no problem. In reality, purchase prices fluctuate — and then the question arises: which unit value sits in the sold unit, and which remains in stock? This is exactly where the valuation method comes in. It does not determine the legal ceiling, but how you compute the acquisition cost of your stock. In Swiss accounting practice — and consistent with Swiss GAAP FER — two methods are common.

FIFO (First In, First Out)

FIFO assumes that the goods purchased first are sold first. What remains in stock, computationally, are the most recent — that is, in a rising-price environment, the more expensive stock. FIFO maps physical reality well for perishable or batch-based goods — wherever «old before new» actually flows.

Moving average

Here, a new average unit value is calculated after every goods receipt. Every outflow is valued at this running average. The method is pragmatic for many homogeneous parts with a computer-managed warehouse, because it smooths price fluctuations and needs little manual upkeep.

A short worked example

You buy 100 units at CHF 10, then 100 units at CHF 12. You then sell 120 units.

• FIFO: cost of goods sold = 100 × 10 + 20 × 12 = CHF 1’240; remaining stock 80 × 12 = CHF 960.
• Moving average: average (1’000 + 1’200) / 200 = CHF 11; cost of goods sold 120 × 11 = CHF 1’320; remaining stock 80 × 11 = CHF 880.

Same goods, same transactions — different cost of goods sold and different inventory value. The choice of method is therefore not a formality, it directly affects the balance sheet and the result.

A note for completeness: the LIFO method (Last In, First Out) is not common practice in Swiss accounting and should not be carried over from German sources without checking.

The consistency principle: once chosen, stick with it

This is where the second legal guardrail comes in — and it is the real reason you must not switch methods according to the year’s result. Among the principles of proper accounting is that the same standards must be used in presentation and valuation (Art. 958c para. 1 no. 6 CO). This is the consistency principle.

In practice, this means: those who choose FIFO also value under FIFO in the following year. A change of method is not forbidden, but it requires substantive justification and must be disclosed — what consistency is meant to prevent is arbitrary back-and-forth. Only then do years remain comparable.

Which method fits your SME?

There is no blanket «better». The choice depends on your goods and your processes:

• Perishable or batch-tracked goods (food, dated products, serial numbers): FIFO best reflects the real outflow.
• Many homogeneous parts, high turnover, computer-managed warehouse (screws, standard components, merchandise without batches): the moving average is usually the more pragmatic path.
• Strongly fluctuating purchase prices: consider which picture of inventory value and cost of goods sold most honestly reflects your business — and then stick with it.

When in doubt, the more important decision is not which method, but that you choose one deliberately and apply it consistently.

From principle to practice: what the software should take over

Theory is one thing, clean day-to-day operation is another. An inventory-and-accounting solution should take the mechanics off your hands without violating the principles above. At hegyon.ai it looks like this:

• Method choice per article, moving average or FIFO, depending on the type of goods.
• Automatic goods receipt at the net landed cost when the supplier invoice is posted, no double entry.
• Automatic stock-out when an invoice is shipped; a reversal cleanly undoes it.
• Stocktake with value impact, enter the counted quantity and the system calculates the difference and the value correction, sealing all corrections under an audit signature. What that sealing means for provability is in the post on audit-proof bookkeeping.
• Method change only at stock 0, so consistency is technically protected and not accidentally broken.

That turns the legal principle into a routine that holds up in daily work — instead of an Excel sheet that nobody understands anymore.

Conclusion

Swiss law on inventory valuation is clearer and at the same time more open than many think: Art. 960c CO sets the value ceiling via the lower-of-cost-or-market principle, you may choose the method — and Art. 958c CO requires that you stick with the method once chosen. FIFO or moving average is therefore less a legal question than a business decision.

If you want to see how both methods behave in a running warehouse — including automatic valuation and a sealed stocktake — you can try the inventory module in the hegyon.ai demo tenant.

This article is for general orientation and does not constitute legal or tax advice. References to CO Art. 957a, 958c, 960a and 960c reflect the state of June 2026 and are not exhaustive; the authoritative source is the official publication by the Federal Chancellery. For the valuation of your inventory and any tax aspects, please consult your fiduciary or qualified advice.