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

Which of the following descriptions corresponds with the LIFO (Last-In, First-Out) inventory valuation method?

Inventory is valued at the lower of cost or market, regardless of purchase order.

All inventory items are assigned an average cost, and both cost of goods sold and ending inventory are valued at this average.

The most recently purchased items are assumed to be sold first, and ending inventory consists of the oldest costs.

The oldest inventory items are assumed to be sold first, and ending inventory consists of the most recent costs.

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Verified step by step guidance

Understand the concept of LIFO (Last-In, First-Out): LIFO is an inventory valuation method where the most recently purchased items are assumed to be sold first, leaving the oldest inventory costs as part of the ending inventory.

Compare the descriptions provided in the problem to the definition of LIFO. Identify which description matches the principle of selling the most recent inventory first and retaining the oldest costs in ending inventory.

Eliminate descriptions that do not align with the LIFO method. For example, descriptions involving average cost or oldest inventory being sold first are not consistent with LIFO.

Focus on the description that states 'The most recently purchased items are assumed to be sold first, and ending inventory consists of the oldest costs,' as this matches the LIFO principle.

Confirm your understanding by reviewing the key characteristics of LIFO: it prioritizes the sale of newer inventory and leaves older inventory costs in the ending balance, which can impact financial statements during periods of inflation.