The FIFO (First In First Out) inventory method is an accounting technique used to determine the value of unsold goods at the end of a reporting period. This formula works by tracking sales and purchases to determine which were sold first, and thus had been on the shelf longest. By assigning the oldest inventory to current sales, companies can minimize their taxes due to depreciation allowances. Additionally, FIFO provides a better picture of inventory levels to assess stock management practices and identify potential obsolescence issues. While the complexities of this system may appear daunting, FIFO can save businesses time and money in the long run.