In FIFO inventory management, which items are sold first?

In FIFO (First-In, First-Out) inventory management, the principle is that the oldest items in inventory are sold first. This system is based on the idea that products are sold in the order they are received, meaning that the first items added to the inventory are the first to be removed for sale. This approach helps businesses manage their inventory effectively, particularly for perishable goods, as it minimizes the risk of obsolescence and spoilage.

The practice of selling the oldest items first supports accurate tracking of inventory costs and aligns with the matching principle in accounting, ensuring that the costs of goods sold reflect the historical costs of the inventory being sold. By prioritizing the sale of older items, businesses can also better manage cash flow and maintain a more current stock rotation.

When considering this approach, other methods such as LIFO (Last-In, First-Out) or specific identification do not align with the FIFO method and focus on different aspects of inventory management. Thus, the defining characteristic of FIFO is the sale of the oldest inventory items first, reinforcing the correct choice.