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

Periodic Inventory - FIFO, LIFO, and Average Cost

Financial Accounting

5. Inventory

Periodic Inventory - FIFO, LIFO, and Average Cost

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Multiple Choice

An advantage of the weighted average method under a periodic inventory system is that it:

smooths out price fluctuations over the accounting period

matches the most recent costs with current revenues

requires tracking the cost of each individual inventory item

always results in the highest net income during periods of rising prices

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Verified step by step guidance

Understand the weighted average method: This method calculates the cost of inventory by averaging the cost of all inventory items available for sale during the accounting period. It does not focus on individual item costs but rather smooths out price fluctuations.

Recognize the purpose of the periodic inventory system: In this system, inventory is updated at the end of the accounting period, and the weighted average method helps to simplify the calculation of the cost of goods sold (COGS).

Analyze the impact of price fluctuations: The weighted average method smooths out price fluctuations by averaging costs, which prevents drastic changes in inventory valuation due to varying purchase prices.

Compare the weighted average method to other methods: Unlike FIFO (First-In, First-Out) or LIFO (Last-In, First-Out), the weighted average method does not match the most recent costs with current revenues or result in the highest net income during periods of rising prices.

Conclude the advantage: The key benefit of the weighted average method under a periodic inventory system is its ability to smooth out price fluctuations over the accounting period, making inventory valuation more stable and predictable.