What does FIFO stand for and why is it used?

• A. Fast In, First Out; use oldest inventory first
• B. First In, First Out; use oldest inventory first
• C. Front In, First Out; rotate stock weekly
• D. First In, Final Out; discard old stock

Answer: (B)

FIFO stands for First In, First Out. It means the items that are added to inventory earliest are the ones used or sold first. This mirrors how many products actually move through stock, especially perishables or items that can become obsolete, reducing the risk of waste or stale stock. In accounting terms, FIFO assigns the older costs to the cost of goods sold and keeps newer costs in ending inventory. That makes sense when prices are rising, because it often results in a lower COGS and a higher ending inventory value, while still reflecting a logical flow of goods. The other phrasing in the options isn’t standard terminology and would imply different procedures (like discarding old stock or using nonstandard terms), which is why they aren’t used in practice.