FIFO (First In, First Out)

FIFO, standing for "First-In, First-Out," is a method used in inventory management and accounting to track and calculate the value of goods or assets. It operates under the assumption that the first items bought or acquired (the oldest) are the first ones to be sold or used up. So if you're selling items or counting costs, you'd count the oldest items first. This method is commonly used because it's straightforward and reflects the typical flow of goods in many businesses.

Example:

Let's take two examples to illustrate this:

Example with Apples: Let's say you bought 3 apples on Monday for $1 each. Then on Tuesday, you bought 2 more apples for $2 each. Now you have 5 apples, and you paid a total of $7 for them. On Wednesday, you decide to sell 2 apples for $3 each. According to the FIFO method, you'd assume that the apples you're selling are the ones you bought first. So, in this case, they're the ones you bought on Monday for $1 each. So your profit for each apple sold is $2 ($3 selling price - $1 cost price).‍
Example with Bitcoin: Suppose you bought 1 Bitcoin for $10,000 in January. Then, in March, you bought another Bitcoin for $15,000. In May, Bitcoin's price goes up, and you decide to sell 1 Bitcoin for $20,000. With the FIFO method, you'd consider the Bitcoin that you're selling to be the one that you bought in January for $10,000. This means your profit (capital gain for tax purposes) would be $10,000 ($20,000 selling price - $10,000 cost price).

The FIFO method is frequently used in business and investing because it's simple and it matches the natural flow of goods in many businesses. However, it also has tax implications because the cost of items often changes over time, which can impact profit calculations.

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FIFO (First In, First Out)

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