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

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Which of the following does the FIFO (First-In, First-Out) inventory method require?

The most recently purchased goods are the first to be sold.

Inventory is valued at replacement cost.

Inventory is expensed as it is physically counted.

The earliest goods purchased are the first to be sold.

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Verified step by step guidance

Understand the FIFO (First-In, First-Out) inventory method: FIFO assumes that the earliest goods purchased or produced are the first to be sold, meaning inventory is sold in the order it was acquired.

Clarify the concept of inventory flow: FIFO does not mean the most recently purchased goods are sold first; instead, it prioritizes the oldest inventory for sale.

Recognize how inventory valuation works under FIFO: The cost of goods sold (COGS) is based on the cost of the oldest inventory, while the ending inventory reflects the cost of the most recent purchases.

Eliminate incorrect options: FIFO does not value inventory at replacement cost, nor does it expense inventory as it is physically counted. These are unrelated to FIFO principles.

Confirm the correct answer: The FIFO method requires that the earliest goods purchased are the first to be sold, aligning with the definition of FIFO.