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

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Which inventory cost flow method most closely approximates the physical flow of inventory items in most businesses?

Specific Identification

Last-In, First-Out (LIFO)

Weighted Average Cost

First-In, First-Out (FIFO)

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Verified step by step guidance

Understand the concept of inventory cost flow methods: These methods determine how the cost of inventory is assigned to cost of goods sold and ending inventory. Common methods include Specific Identification, Last-In, First-Out (LIFO), Weighted Average Cost, and First-In, First-Out (FIFO).

Analyze the physical flow of inventory in most businesses: In many industries, inventory items are sold in the order they are received or produced. For example, perishable goods like food or medicine are typically sold in the order they arrive to avoid spoilage.

Evaluate the characteristics of each method: Specific Identification tracks individual items, which is impractical for large inventories. LIFO assumes the most recent inventory is sold first, which does not align with the physical flow in most businesses. Weighted Average Cost averages the cost of all inventory, which does not reflect the physical flow either.

Focus on FIFO: The First-In, First-Out method assumes that the oldest inventory (first purchased or produced) is sold first, which closely matches the physical flow of inventory in most businesses, especially those dealing with perishable goods or items with expiration dates.

Conclude that FIFO is the inventory cost flow method that most closely approximates the physical flow of inventory items in most businesses, as it aligns with the natural order of selling older inventory first.