First in, First out (FIFO)

A cost flow assumption where oldest costs of producing, acquiring or disposing are assigned to the asset first for the determination of cash outflow.

First in, First out (FIFO) method is widely used in management and valuation of such assets that are flowing into the entity with varying acquisition values and thus its difficult to determine what value should be used for outflowing asset.

FIFO helps in such cases by assuming that oldest units and thus oldest costs are consumed or accounted for first rendering cost determination on oldest prices and asset at hand being valued at latest prices.

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