FIFO is the acronym for First In, First Out. FIFO is a cost flow assumption often used to remove costs from the Inventory account when an item in inventory had been purchased at varying costs.

Under FIFO, the oldest cost of an item in inventory will be removed first when one of those items is sold. This oldest cost will then be reported on the income statement as part of the cost of goods sold. FIFO also means that the more recent costs of an item will remain in the Inventory account and will be reported on the balance sheet.

Learn more about FIFO and LIFO at Inventory & Cost of Goods Sold.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

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