FIFO Method (Accounting)

The FIFO method, or "First In, First Out," is an accounting method used to value inventory. It assumes that the oldest inventory items are sold first. For example, if a store has products bought at different times, FIFO means the costs associated with the oldest products are recorded as sold first when calculating expenses and profits. This method can affect financial statements and tax outcomes, often resulting in lower taxes during times of rising prices, as older, cheaper costs are matched against current revenues. It reflects more accurately the flow of goods in many businesses.