first-in, first-out (FIFO)

Previous Definition
Next Definition
Popular Terms
1. Accounting: Method of inventory valuation based on the assumption that goods are sold or used in the same chronological order in which they are bought. Hence, the cost of goods purchased first (first-in) is the cost of goods sold first (first-out). During periods of high inflation-rates, the FIFO method yields higher value of the ending inventory, lower cost of goods sold, and a higher gross profit (hence the higher taxable income) than that yielded by the last-in first-out (LIFO) method. The 'in' office basket is an illustration of FIFO method.