first in, first out investment & finance definition

An inventory accounting method in which the first goods that are purchased are counted as being sold. FIFO is calculated by taking the inventory at the beginning of the period, adding purchases during the accounting period, and then subtracting the ending inventory to arrive at the cost of goods sold. In times of inflation, FIFO produces a higher ending inventory, a lower cost of goods sold, and a higher gross profit, which means that income taxes may be higher.