What is FIFO?
submitted by Iris Oddit

maruvaiyan

the fifo means first in first out . to collect order in first payment

Tim Robinson

FIFO is the most common inventory valuation method. It stands for "first in, first out," which means that when a company sells or uses inventory, it assumes that the oldest items (the first items purchased or made) are sold first.

If you think of a grocery store this makes sense. The milk that was put on the shelf first gets bought first. This approach is really useful when dealing with perishable goods or other things with a limited shelf life. It helps a company use up their inventory before it becomes unusable.

FIFO tends to give a better picture of inventory value on the balance sheet, especially when prices are rising, because whatever inventory is left is valued at current prices.

terry

The question has already been answered well, but I'll add that FIFO impacts financial statements. When prices are rising, FIFO tends to show higher inventory values on the balance sheet, which might make a company look more financially stable than it actually is if you’re just glancing at the numbers.

On the flip side, because COGS is lower under FIFO during inflation times, net income can look higher. That might give some false hope for profitability.