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What does FIFO stand for?

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Quick Answer

FIFO means "first in, first out" as an accounting or business method of keeping track of inventory. There are other methods as well, such as LIFO, or "last in, first out."

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Full Answer

FIFO is an accounting method for counting inventory. This is also used as a method for business management, as well. FIFO means treating the inventory as the first products in are the first products sold. This is a pricing maneuver in order to compare sale price of newest, or first of the month inventory, as compared to old, or end of the previous month inventory. In this method, the actual physical goods themselves do not matter, only the pricing as part of the accounting method. Most businesses use this method since it records the most recent prices and inflation.

Other methods include the LIFO accounting method. Both FIFO and LIFO determine the cost of goods sold for inventory. When using the LIFO method, it usually tends to increase the price of the store inventory that hasn't been sold yet during inflation periods. FIFO ensures oldest goods are sold first, rotating inventory to sell. LIFO sells the most recent goods first, which could potentially mean inventory received first could remain in the store for years. This can be bad for perishable items, which is why the majority of businesses do not use the LIFO method.

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