The letters FIFO refer to which of the following inventory costing methods?

• A. Fastest-In, Fastest-Out
• B. Final-In, First-Out
• C. First-In, Final-Out
• D. First-In, First-Out

Answer: (D)

Verified step by step guidance

1. Understand that FIFO stands for 'First-In, First-Out,' which is an inventory costing method used in accounting.
2. Learn the concept: FIFO assumes that the oldest inventory items (the ones purchased or produced first) are sold or used first.
3. Recognize the importance of FIFO in financial accounting, as it impacts the cost of goods sold (COGS) and inventory valuation on the balance sheet.
4. Compare FIFO with other inventory costing methods, such as LIFO (Last-In, First-Out) and Weighted Average, to understand its unique characteristics.
5. Apply FIFO in practice by organizing inventory records to ensure the earliest costs are assigned to items sold, while the remaining inventory reflects the most recent costs.