What is FIFO?

Definition: FIFO (First In - First Out) is a method of inventory management and accounting where the oldest inventory items are sold or used first, before newer items are utilized. This method ensures systematic rotation of stock and helps avoid issues with expired or outdated goods.

What are the key features of FIFO?

• Inventory Rotation: Items are used or sold in the order they were received. The oldest goods are the first to be removed.
• Perishability Management: Particularly useful for perishable goods, as it helps manage products with expiration dates effectively.
• Cost Management: In financial accounting, FIFO affects the calculation of the cost of goods sold and inventory valuation. It reflects the cost of the oldest items as the first to be sold, which can impact profit reporting.
• Stock Control: Supports clear and organized inventory management, reducing the risk of holding outdated or no longer needed items.

Where is FIFO applied?

FIFO is used in many industries, including retail and manufacturing, to ensure product freshness, comply with legal requirements, and efficiently manage inventory.