First In, First Out (FIFO) (layer costing)
First In, First Out (FIFO) is an accounting method in which
assets purchased or acquired first are disposed of first. FIFO
assumes that the remaining inventory consists of items purchased
last. FIFO is the most widely used method and also the most
accurate method of aligning the expected cost flow with the actual
flow of goods which offers businesses a truer picture of inventory
costs. Furthermore, it reduces the impact of inflation, assuming
that the cost of purchasing newer inventory will be higher than the
purchasing cost of older inventory. Finally, it reduces the
obsolescence of inventory.