First In, First Out (FIFO)

By Entrepreneur Staff

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First In, First Out (FIFO) Definition:

An accounting system used to value inventory for tax purposes. Under FIFO, inventory is valued at its most recent cost.

FIFO was the traditional method used by most businesses before inflation became common. Under FIFO, the goods you receive first are the goods you sell first. Under this method, you value inventory at its most recent price. FIFO is usually used during periods of relatively low inflation since high inflation and increasing replacement costs tend to skew inventory accounting figures.

More from Accounting

Cash Flow

The difference between the available cash at the beginning of an accounting period and that at the end of the period. Cash comes in from sales, loan proceeds, investments and the sale of assets and goes out to pay for operating and direct expenses, principal debt service, and the purchase of asset

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Cash Flow Statement

A financial statement that reflects the inflow of revenue vs. the outflow of expenses resulting from operating, investing and financing activities during a specific time period

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Cash-Basis Accounting

An accounting system that doesn't record accruals but instead recognizes income (or revenue) only when payment is received and expenses only when payment is made. There's no match of revenue against expenses in a fixed accounting period, so comparisons of previous periods aren't possible.

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Accountant

A person whose work it is to inspect, keep or adjust accounts

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