What is FIFO Inventory Valuation?

• A. First In First Out - Assumes that those items of inventory acquired first are sold before older inventory.
• B. Last In Last Out - Assumes the most recent acquired are sold first. Ending inventory consists of older inventory prices.
• C. Average cost approach.
• D. Specific identification method.

Answer: (A)

FIFO Inventory Valuation is the method that assumes the first items you acquire are the first ones you sell. Because of this, the inventory left at the end of the period consists of the most recently purchased items, valued at those newer costs. So, cost of goods sold is based on the oldest costs, while ending inventory reflects the latest prices (assuming rising prices, COGS would be lower and ending inventory higher). This contrasts with other methods: last-in, first-out uses the most recent costs for COGS; average cost blends all costs into a weighted average; and specific identification assigns the exact cost to each item.