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Finance Glossary

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It sounds like Great Aunt Elmo's pet poodle, but FIFO actually means "First in First Out." It's an accounting term which refers to the method of accounting for inventory. With this method, if you have a bunch of inventory you're selling off, you'd recognize the older inventory first (or the cost of that inventory). 


Let's say you live in a high inflation time and you have stocked yacht bolts (they last forever) in your warehouse. The 1,000 bolts you made 10 years ago cost $2 each; the 500 bolts you made last year cost $5. FIFO accounting would have you recognize the $2 bolts first until you had sold all of them out of your warehouse, and then you'd start accounting for the cost as $5 each instead of $2. That's even if you can't tell the $5 and $2 bolts apart.