The Ending Inventory Formula FIFO (First-In, First-Out) is a way of accounting for the cost of goods that are still in a business’s inventory. It means that the oldest stock on hand will be used first before any new stock is sold or consumed. This method is used to ensure that all of the costs associated with purchasing inventory are accounted for and reflected by the business properly. It can help businesses understand their actual cost of goods and, in turn, help them make more informed decisions when it comes to pricing, budgeting, and planning.