First In First Out (FIFO) is an inventory management method where the oldest stock items are sold or used first. This approach helps businesses maintain fresh inventory and reduces the risk of spoilage, especially for perishable goods like food or pharmaceuticals. By following FIFO, companies can ensure that customers receive the best quality products. In accounting, FIFO is also used to value inventory and calculate cost of goods sold. Under this method, the costs associated with the oldest inventory are recorded first when items are sold. This can impact financial statements and tax calculations, making FIFO a crucial concept for businesses and accountants.