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 of the following statements regarding the financial statement effects of inventory costing methods is FALSE?

Under FIFO, cost of goods sold on the income statement reflects the most recent purchase costs.

Using the weighted-average method, cost of goods sold is based on the average cost of all units available for sale.

LIFO generally results in lower net income during periods of rising prices compared to FIFO.

Under FIFO, ending inventory on the balance sheet reflects the most recent purchase costs.

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Verified step by step guidance

Understand the inventory costing methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted-Average. Each method affects the cost of goods sold (COGS) and ending inventory differently.

Analyze the statement about FIFO: Under FIFO, the oldest inventory costs are used to calculate COGS, while the most recent purchase costs are used to value ending inventory on the balance sheet. This statement is true.

Evaluate the statement about the weighted-average method: Using this method, the average cost of all units available for sale is calculated and applied to both COGS and ending inventory. This statement is true.

Examine the statement about LIFO: During periods of rising prices, LIFO uses the most recent (higher) costs for COGS, which typically results in lower net income compared to FIFO. This statement is true.

Review the statement about FIFO and COGS: Under FIFO, COGS reflects the oldest purchase costs, not the most recent purchase costs. This statement is false, making it the correct answer to the question.