First-In, First-Out (FIFO)

First In, First Out or ‘FIFO’, is an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first.

The FIFO method is used for cost flow assumption purposes. Under FIFO, it is assumed that the cost of inventory purchased first will be recognized first. The dollar value of total inventory decreases in this process because inventory has been removed from the company’s ownership. The costs associated with the inventory may be calculated in several ways — one being the FIFO method.

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