FIFO- Full Form, Meaning & Importance

What is FIFO 

FIFO stands for “First In, First Out.” It’s a way of organizing data, like standing in line for a ticket. The first one to arrive is the first to be served. Imagine a queue where the oldest person is at the front, and that’s how FIFO works – the oldest data gets processed first. It’s like waiting in line at a ticket counter, where the person who arrived first gets served first. This is the opposite of LIFO, where the most recent entry is processed first. 

Here, we will discover: 

• What is FIFO
• Method of FIFO
• Advantages and Disadvantages
• What is FIFO in Operating System
• FIFO Vs LIFO
• FAQs

Method of FIFO  

The FIFO method, which stands for “First In, First Out,” is a way of managing and handling data or items. Here’s a simple explanation of how it works: 

1. Picture a line of people waiting for something, like at a ticket counter or a food stand. 

2. In the FIFO method, the first person who joined the line is the first one to be served. Similarly, the first data or item that enters the system is the first to be processed or used. 

3. When tasks or data are handled, the system deals with the oldest ones first. It’s like following a queue – the one at the front gets attention before others. 

4. You experience FIFO in your daily life when waiting in lines, where the first person to arrive is the first to be served. 

Advantages and Disadvantages  

FIFO is widely used in inventory accounting due to numerous benefits. However, it also has drawbacks that should be considered:  

Advantages of FIFO: 

1. Accurate Costs: It helps track costs accurately, assuming older items are used or sold first. 

2. Reduces Obsolescence: Using older items first minimizes the risk of products becoming outdated or unusable. 

3. Fits Natural Flow: FIFO matches the natural flow in many processes, making it practical in various situations. 

4. Straightforward Reporting: It’s easier to report finances and inventory accurately, especially for tax purposes. 

Disadvantages of FIFO: 

1. May Not Reflect Reality: Sometimes, the actual physical flow of items doesn’t match the FIFO order due to accessibility or space constraints. 

2. Challenges in Certain Environments: Strictly following FIFO can be hard in some manufacturing or storage setups. 

3. Possibly Higher Holding Costs: Keeping older, potentially more expensive items longer may increase holding costs. 

4. Income Tax Impact: It could inflate profits on paper, leading to higher income tax. 

What is FIFO in Operating System 

Imagine your office’s IT help desk as a busy place where employees ask for computer help. Here’s how it works using FIFO: 

• People in your office have asked the IT team for help with computer issues, like fixing problems or installing software. 
• The IT team treats these requests like people waiting in line. The first request they get is the first one they work on. 
• They go in order, just like helping the first person in line at a store. It’s fair because whoever asked for help first gets it first. 
• Think of it like dealing with the person who’s been waiting the longest. They fix the oldest computer issue before moving on to newer ones. 
• This system helps the IT team stay organized and make sure everyone’s request gets attention. 
• Requests don’t skip ahead – it’s all about the order they came in. 
• Using FIFO prevents a bunch of requests from piling up without getting fixed. 
• It’s a simple way for the IT team to manage their work, especially when they’re busy. 
• The time a request is made decides when it gets fixed. It’s like getting help based on when you asked for it. 

• FIFO makes sure everyone’s requests are handled fairly and, in the order, they asked for help. 

FIFO Vs LIFO  

FIFO (First In, First Out) is a method where the first items to enter a system are the first ones to be used or processed. It’s commonly used in inventory and task management, ensuring a fair and orderly approach based on the order of arrival. 

LIFO stands for “Last In, First Out.” It’s a method used in business inventory management and accounting where the most recently added items are the first ones to be used or processed. The last item added is the first to be utilized or sold.  

Conclusion 

In conclusion, FIFO (First In, First Out) is a straightforward and widely used method in various domains, ensuring a fair and orderly approach. Whether managing inventory or processing tasks, FIFO’s principle of prioritizing the oldest items first promotes efficiency, accuracy, and simplicity in handling processes. 

FAQs 

What are the 5 benefits of FIFO? 

1. Ensures fairness by using the oldest items first. 

2. Reflects actual costs with the assumption of using older items first. 

3. Minimizes the risk of older items becoming outdated. 

4. Aligns with the natural flow of processes. 

5. Simplifies accurate reporting of finances and inventory.