First In, First Out

First In, First Out (FIFO)

An accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first. Ending inventory is therefore valued based on the most recently purchased items.

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First In, First Out

In accounting, a technique for valuing inventory by treating inventory acquired first as if it were sold first. The sale of inventory is recorded against the purchase price of the oldest inventory, even if the physical goods are not the same. In times of high inflation, the first-in, first out technique increases a business' inflation risk. For this reason, most American firms have used the last-in, first-out technique in their accounting since the 1970s.

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First In, First Out (FIFO)

What Does First In, First Out (FIFO) mean?

An asset-management and accounting valuation method in which the assets produced or acquired first are sold, used, or disposed of first. FIFO may be used by an individual or a corporation.

Investopedia explains First In, First Out (FIFO)

For taxation purposes, FIFO assumes that the assets that are remaining in inventory are matched to the assets that are purchased or produced most recently. Because of this assumption, a number of tax minimization strategies are associated with using the FIFO assetmanagement and valuation method. In selling shares, FIFO can be used to determine one's cost basis so that sales are matched to share purchases that result in a more favorable tax treatment.

Related Terms:
• Asset
• Asset Turnover
• Generally Accepted Accounting Principles—GAAP
• Inventory
• Inventory Turnover

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First In, First Out (FIFO)

An accounting method for determining the cost of inventories. Under this method, the first items purchased are treated as being the first items sold. Ending inventory is valued using the cost of later purchases, or the lower of cost or market.