First-In, First-Out (FIFO) Method – Inventory Methods in Financial Accounting

The first-in, first-out (FIFO) method assumes that the costs of the first items acquired should be assigned to the first items sold. The costs of the goods on hand at the end of a period are assumed to be from the most recent purchases, and the costs assigned to goods that have been sold are assumed to be from the earliest purchases. Any business, regardless of its goods flow, can use the first-in, first-out (FIFO) method because the assumption underlying it is based on the flow of costs, not the flow of goods.

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