Which statement accurately defines FIFO inventory management?

FIFO, which stands for "First In, First Out," is an inventory management method that dictates that the oldest goods in inventory are the first to be sold. This means that the first items purchased are the first ones to be used or sold. This approach is particularly important in industries where products have a shelf life, such as food or pharmaceuticals, as it helps to minimize waste by ensuring that older stock is sold before it expires.

Adopting FIFO can also affect financial reporting and tax implications, as the cost of goods sold will reflect the cost of older inventory, which is often lower in times of inflation. This method not only facilitates better inventory management but also ensures compliance with accounting principles that may require the oldest costs to be matched against current revenues.

In contrast, the other options do not reflect the essence of FIFO inventory management. For instance, the last goods purchased being the first to sell would instead describe LIFO (Last In, First Out). Average cost calculation and treating all inventory as a single batch do not align with FIFO's specific approach of prioritizing older inventory for sales.