What does "FIFO" stand for in inventory management?

In inventory management, "FIFO" stands for "First-In, First-Out." This method is based on the principle that the oldest inventory items purchased or produced are the first ones to be sold or used. Essentially, it means that the first goods acquired are the first to be removed from inventory, which can be vital in industries where products have a shelf life or can become outdated.

Using FIFO can benefit businesses in terms of cash flow and tax implications, especially during times of inflation. Since older costs are matched against current revenues, this can result in higher taxable income when prices are rising, but it also provides a more accurate picture of inventory costs over time. This method helps maintain the flow of goods and ensures that older stock is used or sold before it becomes obsolete, which is crucial in sectors such as food and pharmaceuticals.