Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Financial Statement Effects of Inventory Costing Methods

Financial Accounting

5. Inventory

Financial Statement Effects of Inventory Costing Methods

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Multiple Choice

Which inventory costing method would result in the highest total assets reported on the balance sheet during a period of rising prices?

Weighted Average Cost

FIFO (First-In, First-Out)

LIFO (Last-In, First-Out)

Specific Identification

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Verified step by step guidance

Understand the inventory costing methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), Weighted Average Cost, and Specific Identification. Each method determines how inventory costs are assigned to cost of goods sold (COGS) and ending inventory.

Recognize the impact of rising prices on inventory valuation. During a period of rising prices, the cost of goods purchased later will be higher than those purchased earlier.

Analyze FIFO (First-In, First-Out): Under FIFO, the oldest inventory costs are assigned to COGS, leaving the most recent (and higher-cost) inventory in ending inventory. This results in higher total assets reported on the balance sheet.

Compare LIFO (Last-In, First-Out): Under LIFO, the newest inventory costs are assigned to COGS, leaving the older (and lower-cost) inventory in ending inventory. This results in lower total assets reported on the balance sheet during rising prices.

Evaluate Weighted Average Cost and Specific Identification: Weighted Average Cost averages all inventory costs, which may result in a middle-ground valuation. Specific Identification assigns costs based on the actual items sold, which depends on the specific inventory mix. Neither method consistently results in the highest total assets during rising prices.