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First in first out (F.I.F.O.)

One of the many methods accepted by the accountancy profession and the taxation authorities for the valuation of stock-in-trade at a particular date. It adopts the proposition that items of stock are issued to factory or retail outlets in the same order as that in which they were purchased. Items in stock at any time will therefore be valued at the most recent prices at which purchased. Stocks will be priced for accounting purposes at the figure on the most recent purchase invoice. any surplus being priced according to the preceding invoice. This system should be carefully distinguished from the last in first out (L.I.F.O.) system, which presupposes that the most recently bought items will have been issued first and that stock-in-hand at any one time will therefore consist of goods bought at older, and usually lower, prices.

Reference: The Penguin Business Dictionary, 3rd edt.