Multiple Choice
Which statement below correctly explains what merchandise inventory is?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is NOT an inventory cost flow method used in accounting for Cost of Goods Sold?
A
FIFO (First-In, First-Out)
B
LIFO (Last-In, First-Out)
C
Weighted Average Cost
D
Specific Revenue Recognition
Verified step by step guidance1
Understand the concept of inventory cost flow methods: These methods are used to determine the cost of goods sold (COGS) and the value of ending inventory. Common methods include FIFO, LIFO, and Weighted Average Cost.
Review the definitions of the listed inventory cost flow methods: FIFO assumes the oldest inventory items are sold first, LIFO assumes the newest inventory items are sold first, and Weighted Average Cost calculates an average cost for all inventory items.
Identify the term 'Specific Revenue Recognition': This is not an inventory cost flow method. Instead, it refers to recognizing revenue when specific criteria are met, typically in accordance with accounting standards like GAAP or IFRS.
Compare the listed options: FIFO, LIFO, and Weighted Average Cost are all valid inventory cost flow methods, while Specific Revenue Recognition is unrelated to inventory costing.
Conclude that Specific Revenue Recognition is the correct answer because it does not pertain to inventory cost flow methods used in accounting for Cost of Goods Sold.
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