Question

in your own words please explain to me what FIFO means in terms of inventory? Can you give me an example when this would be necessary?

Answer 1

FIFO is a method of stock valuation that stands for 'First-In, First-Out'. This assumes that the first (oldest) units of stock produced or received are also the first ones that are sold.

examples for FIFO would be necassary

when the price of the inventory changing very fastly and it will lead to tax liabilty , so it os FIFo will value inventory based on firstin, first out

some government only allows FIFO method for the valuation of inventory for the tax purpose

when the case of perishable goods it more appropriate to follow FIFO method