Practice FIFO, LIFO, weighted average, and specific identification inventory costing methods under both periodic and perpetual systems. Free detailed explanations.
Start practising now — it's free Read study guidesInventory costing is one of the most consequential accounting choices a company makes — the method used determines cost of goods sold on the income statement and ending inventory on the balance sheet simultaneously. Different methods produce different results, especially during periods of changing prices.
FIFO assumes oldest inventory is sold first — in rising price environments, this produces lower COGS, higher gross profit, and higher ending inventory. LIFO assumes newest inventory is sold first, producing higher COGS and lower ending inventory. Note LIFO is permitted under US GAAP but prohibited under IFRS. Weighted average averages the cost of all units available.
Questions cover calculations under all three methods for both periodic and perpetual systems, the lower of cost or net realisable value rule, and inventory estimation using gross profit and retail methods.
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