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

Under the LIFO inventory method, which units are assumed to be sold first when calculating Cost of Goods Sold?

The oldest units in inventory

The most recently purchased units

The units with the highest cost

A random selection of units

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Verified step by step guidance

Understand the concept of LIFO (Last-In, First-Out): Under the LIFO inventory method, the assumption is that the most recently purchased inventory items are sold first when calculating the Cost of Goods Sold (COGS). This is opposite to FIFO (First-In, First-Out), where the oldest inventory items are sold first.

Analyze the options provided: The question asks which units are assumed to be sold first under LIFO. The options include 'The oldest units in inventory,' 'The most recently purchased units,' 'The units with the highest cost,' and 'A random selection of units.'

Eliminate incorrect options: Under LIFO, the oldest units in inventory are not sold first, so this option is incorrect. Similarly, LIFO does not involve random selection or prioritizing units with the highest cost, so these options can also be eliminated.

Focus on the correct option: The most recently purchased units are sold first under LIFO. This aligns with the principle of LIFO, where the last items added to inventory are the first to be removed for COGS calculation.

Apply this understanding to inventory accounting: When using LIFO, the cost of goods sold reflects the cost of the most recent purchases, while the ending inventory reflects the cost of older inventory items. This method can impact financial statements, especially during periods of inflation.