First in First out definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. First in First out can be defined as: Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sole. First in first out FIFO is a cost flow assumption, First out first out seems like a reasonable assumption to match the physical flow meaning that the first items we purchase would be assumed to be the first items sold, but this is just an assumption an may not be reality. Cost flow assumptions like first in first out FIFO, last in fist out LIFO, and average method, are useful when it does not make sense to specifically identify the cost of inventory.
