In inventory management, what does FIFO mean?

FIFO stands for "First In First Out," which is a widely used inventory management practice. This method stipulates that the oldest inventory items are the first to be used or sold. Implementing FIFO helps in managing perishable goods effectively, ensuring that older stock moves out before it can spoil or become obsolete. By using FIFO, businesses can reduce waste, maintain the freshness of their products, and ensure a more accurate reflection of inventory costs on financial statements.

In contrast to FIFO, alternative methods may not prioritize the order of inventory usage based on age, which can lead to issues such as extended storage of older stock or discrepancies in inventory valuation. FIFO clearly outlines the flow of inventory and supports efficient stock management.