FIFO means the goods that came in first go out first. It is used in two senses.
Physical FIFO
In the godown, older lots are issued before newer ones. This matters most for goods that expire, change shade or lose quality: medicines, food, paint, tiles of one batch. A distributor of packaged foods who issues the newest stock first ends up writing off expired cartons from the back of the rack.
FIFO for valuation
In the books, FIFO values the cost of goods sold at the oldest purchase prices and the closing stock at the most recent ones. Under the accounting standard on inventories (AS 2, and Ind AS 2 for larger companies), FIFO and weighted average are the accepted methods for most goods. LIFO is not permitted.
An example
A trader buys 100 units at ₹50 in April and 100 at ₹56 in June, then sells 150 in July. Under FIFO the cost of the 150 sold is 100 × ₹50 + 50 × ₹56 = ₹7,800, and the 50 left are valued at ₹56 each, ₹2,800.
When prices rise, FIFO shows a higher profit and higher closing stock than weighted average. The method should be chosen once and applied consistently.