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

The FIFO (First-In, First-Out) method assumes that:

all inventory items are sold at their average cost

the earliest goods purchased are the first to be sold

inventory is valued at the lower of cost or market

the most recently purchased goods are the first to be sold

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Verified step by step guidance

Understand the FIFO (First-In, First-Out) inventory valuation method: FIFO assumes that the earliest goods purchased are the first to be sold. This method is commonly used in accounting to track inventory costs and calculate the cost of goods sold (COGS).

Clarify the distinction between FIFO and other inventory methods: FIFO contrasts with methods like LIFO (Last-In, First-Out), which assumes the most recently purchased goods are sold first, and Weighted Average Cost, which calculates inventory costs based on the average cost of all items.

Recognize the implications of FIFO: Under FIFO, the cost of goods sold reflects the cost of the oldest inventory items, while the ending inventory reflects the cost of the most recent purchases. This can impact financial statements, especially during periods of inflation or deflation.

Review the options provided in the problem: The correct answer aligns with the FIFO assumption that the earliest goods purchased are the first to be sold. The other options describe different inventory valuation methods or principles.

Apply FIFO in practice: When solving problems involving FIFO, identify the chronological order of inventory purchases, calculate the cost of goods sold using the oldest inventory costs, and determine the value of ending inventory using the most recent purchase costs.