method of inventory valuation in which cost of goods sold is charged with the cost of raw materials, semi-finished goods, and finished goods purchased “first” and in which inventory contains the most recently purchased materials. In times of rapid inflation, FIFO inflates profits, since the least expensive inventory is charged against cost of current sales, resulting in inventory profits.
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:
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.