The FIFO (First In, First Out) Method Periodic Inventory System is a method for valuing inventory. It assumes that the oldest items in inventory are the first ones to be sold and recognizes the cost of goods sold as the cost of acquiring the oldest inventory item on hand. Under this system, the most recent acquisitions are reported on the balance sheet at their cost price until they are sold, upon which time the cost of goods sold are updated to the cost of the newest acquisitions. This system is used by businesses to accurately reflect their inventory valuation and is key to prudent financial decision making.