First-In-First-Out Accounting

First-In-First-Out is an accounting method where the assets acquired earliest are considered the first ones sold. This approach is widely used in financial reporting because it is straightforward and easy to track.

In a rising market, this method often results in higher realized gains because the oldest assets likely have the lowest cost basis. Conversely, in a falling market, it may show smaller gains or larger losses.

Tax authorities frequently accept this method as a default standard. It requires precise documentation of the acquisition date for every unit held.

Investors must maintain historical records to support this calculation. It provides a consistent and objective way to manage tax obligations.

Many automated tax software platforms use this as their primary calculation engine.