"First In First Out" (FIFO) is a method used in inventory management, accounting, and queueing theory, which refers to the principle of processing or handling items or entities in the order they arrived or were received. The term is commonly used in various contexts, such as data structures, supply chain management, and financial accounting.
In the context of inventory management, FIFO denotes that the oldest inventory items are sold, used, or otherwise dealt with first, while the newest items are handled later. This practice ensures that goods with the earliest arrival or production date are consumed or sold before the more recently acquired or produced ones. By following the FIFO principle, potential issues like stock obsolescence or spoilage can be minimized, as perishable or time-sensitive products are utilized promptly.
In accounting, FIFO is a widely accepted method of valuing inventory. When calculating the cost of goods sold (COGS) or determining the value of remaining inventory, the FIFO approach assumes that the items purchased or produced first are also the ones that are sold or used first. This method is especially relevant in industries where product demand fluctuates or prices are subject to inflation.
FIFO is not only applicable to physical goods but can also be employed in managing queues or waiting lines, where the first person or entity to join the line is the first to be served or processed. This ensures fairness and reasonable service times for individuals who have been waiting longer. Overall, the principle of first in first out helps ensure smooth and efficient operations by prioritizing the earliest arrivals or inputs over more recent ones.
