\ ˈfī-(ˌ)fō How to pronounce FIFO (audio) \

Definition of FIFO

first in, first out

Learn More about FIFO

Statistics for FIFO

Last Updated

18 Feb 2020

Cite this Entry

“FIFO.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/FIFO. Accessed 27 Feb. 2020.

Keep scrolling for more

More Definitions for FIFO

Financial Definition of FIFO

What It Is

First in, first out (FIFO) is an accounting method for inventory valuation that assumes that goods are sold or used in the same chronological order in which they are acquired.

How It Works

The accounting method of first in, first out (FIFO) assumes that merchandise purchased first is sold first. FIFO values all inventory according to the cost of the earliest-purchased merchandise in a given accounting period. In other words, FIFO does not recognize the disparity between the costs of earlier- or later-purchased merchandise. As a result, revenues from merchandise sold are measured against the cost of the earliest-purchased merchandise regardless of any differences in the cost of the merchandise or of the goods themselves.

To illustrate, suppose that at the beginning of a given period, a store buys 10 coffee mugs at a cost of one dollar each. A week later, the store also buys picture frames for $5 each. At the end of the period, the store has sold 10 total items (a combination of coffee mugs and picture frames) for $100 in revenue. Although not all of the 10 items sold were coffee mugs, the revenue the store received from the sale will only be measured against the cost of the 10 coffee mugs ($10) because, as inventory, they were acquired first.

Why It Matters

Because inventory can make up a large portion of a company's assets and is an important component of the balance sheet, it is crucial for investors to take the time to understand how inventory is valued.

Though there are tax advantages to using FIFO in the case of higher first-in inventory costs, FIFO can result in higher taxes in the event of inflation combined with the sale of more recently-purchased items.

Source: Investing Answers

\ ˈfī-ˌfō \

Legal Definition of FIFO

first in, first out

Comments on FIFO

What made you want to look up FIFO? Please tell us where you read or heard it (including the quote, if possible).

WORD OF THE DAY

See Definitions and Examples »

Get Word of the Day daily email!

Test Your Vocabulary

More Confusing Words—Quiz

  • cats on impossible timber
  • The magician ______ moved the selected card to the top of the deck.
Spell It

Can you spell these 10 commonly misspelled words?

TAKE THE QUIZ
Add Diction

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ
Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!