first-in, first-out

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(First In First Out) A storage method that retrieves the item stored for the longest time. Contrast with LIFO. See traffic engineering methods.

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method of accounting for inventory whereby, quite literally, the inventory is assumed to be sold in the chronological order in which it was purchased. For example, the following formula is used in computing the cost of goods sold: + – = Under the FIFO method, inventory costs flow from the oldest purchases forward, with beginning inventory as the starting point and ending inventory representing the most recent purchases. The FIFO method contrasts with the LIFO or last in, first out method, which is FIFO in reverse. The significance of the difference becomes apparent when inflation or deflation affects inventory prices. In an inflationary period, the FIFO method produces a higher ending inventory, a lower cost of goods sold figure, and a higher gross profit. LIFO, on the other hand, produces a lower ending inventory, a higher cost of goods sold figure, and a lower reported profit.
In accounting for the purchase and sale of securities for tax purposes, FIFO is assumed by the IRS unless it is advised of the use of an alternative method.

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An asset-management and valuation method in which the assets produced or acquired first are sold, used or disposed of first. FIFO may be used by a individual or a corporation.

Investopedia Says:
For taxation purposes, FIFO assumes that the assets that are remaining in inventory are matched to the assets that are most recently purchased or produced. Because of this assumption, there are a number of tax minimization strategies associated with using the FIFO asset-management and valuation method.

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IN BRIEF: n. - Inventory accounting in which the oldest items (those first acquired) are assumed to be the first sold.

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For a list of words related to FIFO, see:

• General Technology - FIFO: first in, first out; processing of information in order received

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