First In, First Out (FIFO) is an inventory accounting method that assumes the first items purchased or produced are the first ones sold or used. Under FIFO, inventory costs are allocated based on the chronological order of acquisition, meaning the oldest inventory is considered to be sold first. This method is widely used in industries where the flow of goods follows a sequential order, such as retail, manufacturing, and distribution. FIFO helps businesses determine the cost of goods sold (COGS) and ending inventory value for financial reporting purposes, especially during periods of fluctuating prices. It provides a more accurate representation of inventory costs and profitability compared to other methods, such as Last In, First Out (LIFO) or weighted average cost.