Which inventory pricing method assumes that the first goods purchased are the first ones sold?

The inventory pricing method that assumes that the first goods purchased are the first ones sold is known as FIFO, which stands for "First In, First Out." This method reflects the chronological order of inventory management, emphasizing that the earliest goods acquired are the first to be sold to customers.

Using FIFO for inventory accounting means that when items are sold, their cost is based on the oldest inventory first. This approach is particularly beneficial in times of rising prices, as it can result in lower cost of goods sold and higher profits on financial statements. It also generally aligns with the physical flow of products, especially for perishable items, ensuring that older stock is used before new stock.

In contrast, other inventory pricing methods operate differently. For instance, LIFO (Last In, First Out) assumes that the last goods purchased are sold first, which can lead to a higher cost of goods sold during inflationary periods. The weighted average method calculates an average cost for all units available for sale during the period, while standard costing uses predetermined costs assigned to products. Each of these methods serves different purposes and can significantly affect financial reporting and tax liabilities but does not follow the FIFO principle of selling the oldest inventory first.