Question

Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO?

1) LIFO: Cost of goods sold = Opening inventory + Purchases - Closing inventory, Ending inventory = Closing inventory
2) LIFO: Cost of goods sold = Opening inventory + Purchases - Closing inventory, Ending inventory = Opening inventory
3) FIFO: Cost of goods sold = Opening inventory + Purchases - Closing inventory, Ending inventory = Closing inventory
4) FIFO: Cost of goods sold = Opening inventory + Purchases - Closing inventory, Ending inventory = Opening inventory

Answer 1

The cost of goods sold and ending inventory are calculated differently under the LIFO and FIFO methods.

Step-by-step explanation:

When using the LIFO (Last-In, First-Out) method, the cost of goods sold is calculated by adding the opening inventory to the purchases made during the period and subtracting the closing inventory. The ending inventory is equal to the closing inventory.

On the other hand, when using the FIFO (First-In, First-Out) method, the cost of goods sold is also calculated by adding the opening inventory to the purchases made during the period and subtracting the closing inventory. However, the ending inventory is equal to the opening inventory instead of the closing inventory.

It's important to note that the LIFO method assumes that the most recent inventory items are sold first, while the FIFO method assumes that the oldest inventory items are sold first.