Full Form of FIFO:
First In First Out
FIFO Full Form is First In First Out. The technique used for evaluation and management of assets is known as the FIFO or First in First Out method. In this technique, the acquired or produced assets are disposed or sold by a corporation or an individual and used by them. The main assumption made during FIFO for the purpose of taxes is that the remaining assets in the inventory match with the most recently produced or purchased assets.
The FIFO methodology is primarily used for the assumption purposes of the flow of cost. A proper recognition of the product’s associated cost must be given as an expense while the progress of the items being made enters into the later stages of development. This also holds true when the inventory items that are finished are sold. Since the inventory is removed from the ownership of the company, there is a drop in the total inventory’s dollar value. There are multiple ways of calculating the cost related to the inventory, the FIFO method being one of them.
The logic followed by the method of the FIFO states that for avoiding obsolescence, the items that are older in the inventory must be sold first by the company, and the items that have entered recently must be kept in the inventory. Although the real method of valuation of inventory does not require the following of the inventory flow through an organization or a company, a proper support on the reason for the selection of a particular method of inventory valuation must be given by an entity.