Question

Which of these inventory accounting methods are acceptable under US GAAP? (check all that apply)

1) specific identification
2) LIFO
3) weighted average
4) FIFO
5) FIDO

Answer 1

The inventory accounting methods acceptable under US GAAP are specific identification, LIFO, weighted average, and FIFO. FIDO is not a recognized inventory accounting method. Companies choose based on their inventory turnover and cost flow assumption, and changes to the chosen method must be disclosed.

Step-by-step explanation:

Under US Generally Accepted Accounting Principles (US GAAP), the acceptable inventory accounting methods are specific identification, LIFO (Last-In, First-Out), weighted average, and FIFO (First-In, First-Out). The method listed as FIDO is not recognized under US GAAP. Companies choose a method that best reflects their inventory turnover and cost flow assumption.

• Specific identification is typically used when companies can identify individual items with specific costs, such as unique or high-cost items.
• LIFO assumes the most recently produced or purchased items are sold first and is often used to match the latest inventory costs with current revenues.
• The weighted average method takes the cost of goods available for sale and divides it by the number of items available, spreading the cost evenly across all units.
• FIFO assumes the oldest inventory items are sold first, which often reflects the actual physical flow of goods.

These methods are selected based on the company's financial strategy and reporting requirements, and once a method is selected, changes must be justified and disclosed in the financial statements.