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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Under the FIFO (First-In, First-Out) method in periodic inventory systems, which of the following statements is correct?

The earliest goods purchased are the first to be recognized as cost of goods sold.

The most recently purchased goods are the first to be recognized as cost of goods sold.

All inventory items are assigned the same average cost.

Inventory is valued at the most recent purchase price only.

Previous problemNext problem

Verified step by step guidance

Understand the FIFO (First-In, First-Out) method: FIFO assumes that the earliest goods purchased are the first to be sold. This means the cost of goods sold (COGS) is based on the oldest inventory costs, while the ending inventory reflects the most recent purchase costs.

Analyze the periodic inventory system: In a periodic inventory system, inventory updates occur at the end of the accounting period rather than continuously. This affects how costs are assigned to COGS and ending inventory under FIFO.

Evaluate the given options: Compare each statement to the FIFO method principles. For example, the statement 'The earliest goods purchased are the first to be recognized as cost of goods sold' aligns with FIFO, while other options describe different inventory methods like LIFO or weighted average.

Eliminate incorrect options: The statement 'The most recently purchased goods are the first to be recognized as cost of goods sold' describes the LIFO (Last-In, First-Out) method, not FIFO. Similarly, 'All inventory items are assigned the same average cost' refers to the weighted average method, and 'Inventory is valued at the most recent purchase price only' is not accurate for FIFO.

Select the correct statement: Based on the analysis, the correct statement is 'The earliest goods purchased are the first to be recognized as cost of goods sold,' as it accurately describes the FIFO method in a periodic inventory system.