First in First Out (FIFO)
First in First Out (FIFO) is an accounting method used to record and track the flow of inventory and costs associated with it. It is based on the principle that the first items purchased are the first items sold. This method is used to ensure that the cost of goods sold (COGS) is accurately reflected in the financial statements. FIFO is the most commonly used inventory valuation method and is required by the Generally Accepted Accounting Principles (GAAP).
History of FIFO
The concept of FIFO was first introduced in the early 1900s by the American Institute of Accountants. It was initially used to track the cost of goods sold in manufacturing and retail businesses. Over time, the concept of FIFO has been adopted by many other industries, including the hospitality, healthcare, and construction industries. FIFO is now used by businesses of all sizes to accurately track the cost of goods sold.
Comparison of FIFO and Other Inventory Valuation Methods
| Method | Cost of Goods Sold | Inventory Value |
|---|---|---|
| FIFO | Oldest | Newest |
| LIFO | Newest | Oldest |
| Average Cost | Weighted Average | Weighted Average |
Summary
First in First Out (FIFO) is an accounting method used to track the cost of goods sold and inventory value. It is based on the principle that the first items purchased are the first items sold. FIFO is the most commonly used inventory valuation method and is required by the Generally Accepted Accounting Principles (GAAP). For more information about FIFO, visit the websites of the American Institute of Accountants, the Financial Accounting Standards Board, and the Internal Revenue Service.
See Also
- Last in First Out (LIFO)
- Average Cost Method
- Cost of Goods Sold (COGS)
- Inventory Valuation
- Generally Accepted Accounting Principles (GAAP)
- Financial Accounting Standards Board (FASB)
- Internal Revenue Service (IRS)
- Inventory Management
- Inventory Control
- Inventory Turnover
