FIFO Method (in Accounting)

The FIFO method, which stands for "First In, First Out," is an accounting approach used to manage inventory and cost of goods sold. It assumes that the oldest inventory items are sold first. For example, if a business sells products that were bought at different prices over time, FIFO will calculate the cost of sold items based on the price of the earliest purchases. This method can affect financial statements, taxes, and profit reporting, especially in periods of fluctuating prices. It provides a clear picture of inventory flow and is commonly used in various industries.