FIFO (First In First Out)

Meaning & Definition

The FIFO (First In, First Out) inventory and cost management method consists of using items that have been bought or manufactured first, over items that have been bought or manufactured last. This means that the oldest stock is used before the newer stock. The FIFO method is used by companies to help keep stock rotated properly, to reduce waste, and to create a correct value of inventory for both accounting and operating purposes.

Importance of FIFO 

• Decreases how much is left over as they will be using the older product before using the newer stock.
• Provides improved stock control via inventory rotation.
• Allows companies to report on their finances correctly by tracking costs correctly.
• Works well with small items such as food, drugs, etc., and retail merchandise.
• Makes warehouses and inventory management easier and more organized.

Legal Compliance & Requirements

FIFO (First In First Out) has no specific HR compliance laws.

FIFO is primarily used for inventory valuation and accounting purposes under:

• Indian Accounting Standard (Ind AS) 2, Inventories 
• Generally Accepted Accounting Principles (GAAP) 

FIFO is an approved method for valuing inventory on financial statements according to these accounting standards.