Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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What does the acronym FIFO stand for?

First-In, First-Out
First-In, Final-Ordered
First-In, First-Organized
First-In, Financial-Out

The correct answer is: First-In, First-Out

The acronym FIFO stands for "First-In, First-Out." This method is commonly used in accounting and inventory management to describe the order in which assets are processed or sold. Under FIFO, the oldest inventory items are sold or used first before the newer items, ensuring that the cost of goods sold reflects the earliest prices paid for inventory. This approach is especially relevant in environments where inventory can perish, become obsolete, or fluctuate in cost. In financial reporting, applying FIFO can have implications for profit reporting and tax calculations, particularly in fluctuating price environments. Therefore, understanding FIFO is essential for effective inventory management and accurate financial statements.