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Business glossary

FIFO

Definition

First in, first out: an inventory method that treats the earliest acquired units as sold first.

Pocket Invoice Editorial Team · Updated

Example

A business buys 10 units at $8 and then 10 at $10. If it sells 12 units, FIFO assigns 10 × $8 + 2 × $10 = $100 to those units, leaving eight $10 units in inventory.

How it differs from related terms

FIFO describes a cost-flow assumption. It is not necessarily proof of which physical unit was delivered. Apply the accounting method consistently and keep purchase quantities and costs available for reconciliation.

Frequently asked questions

What is an example of fifo?

A business buys 10 units at $8 and then 10 at $10. If it sells 12 units, FIFO assigns 10 × $8 + 2 × $10 = $100 to those units, leaving eight $10 units in inventory.

How should fifo be interpreted?

FIFO describes a cost-flow assumption. It is not necessarily proof of which physical unit was delivered. Apply the accounting method consistently and keep purchase quantities and costs available for reconciliation.