The acronym identifies a specific inventory valuation method and data handling principle. In the realm of accounting, it assumes that the first goods purchased are also the first goods sold. For example, if a store buys apples on Monday for $1 each and more apples on Tuesday for $1.25 each, it is assumed the apples sold on Wednesday are from Monday’s batch, costing $1 each for accounting purposes.
This approach provides a systematic and transparent method for cost accounting and inventory management. Its benefits include a straightforward calculation of the cost of goods sold and a potentially more accurate reflection of current inventory value, especially in times of rising prices. Historically, it has been favored for its simplicity and its alignment with the physical flow of many types of inventory, simplifying the tracking and reconciliation process.
