In inventory management, what does FIFO stand for?

FIFO stands for "First In, First Out," which is a widely used inventory valuation method that assumes the first items purchased or produced are the first to be sold or used. This approach is particularly important in industries where products have a limited shelf life, such as food and beverages. By utilizing FIFO, businesses can effectively manage their inventory by ensuring that older products are sold before they expire, reducing waste and optimizing cash flow.

In practice, adopting FIFO in merchandising helps maintain accurate accounting records and financial statements, as it reflects the actual flow of goods. It also assists in managing stock levels and planning for future inventory needs. By understanding the implications of FIFO, inventory managers can make informed decisions that impact overall profitability and customer satisfaction. This method contrasts with other inventory approaches, which may not align as effectively with the natural flow of goods in certain industries.