Which concept is commonly used in inventory management and accounting for product turnover?

In inventory management and accounting, the First-In/First-Out (FIFO) method is a widely accepted approach for product turnover. This concept operates on the principle that the first items added to inventory are the first to be sold or utilized. This method is particularly significant in industries where products have a shelf life, such as food and pharmaceuticals, because it helps ensure that older inventory is used before it deteriorates or becomes obsolete.

Adopting FIFO can help businesses manage costs effectively, especially during periods of inflation. As prices rise, older, cheaper inventory is sold first, which can lead to lower cost of goods sold on financial statements. This results in a higher net income in the short term compared to methods like Last-In/First-Out (LIFO), where newer inventory—which may be more expensive—would be sold first, potentially lowering reported profits.

Overall, FIFO helps maintain product quality and ensures compliance with accounting standards related to inventory valuation and cost flow assumptions.