What does FIFO stand for in inventory management?

FIFO stands for "First In First Out," which is a widely used inventory management and accounting method. This approach dictates that the oldest inventory items are sold or used first, ensuring that goods are rotated in a manner that minimizes the likelihood of obsolescence or spoilage.

Utilizing FIFO helps businesses maintain accurate financial records by aligning the flow of inventory with the costs recorded in the accounting period. It is particularly essential for industries where products have a shelf life, such as food and pharmaceuticals, as it helps in maintaining quality and freshness. In essence, FIFO supports effective inventory control and improves cash flow by managing the timing of inventory purchases and sales more strategically.

This systematic handling of inventory can also enhance customer satisfaction, as it ensures that customers receive the freshest products. Overall, FIFO is a fundamental principle in inventory management that promotes efficiency and organization in stock handling.