A) FIFO assumes the oldest inventory sells first, B) LIFO assumes the newest, C) Weighted Average assumes a constant unit cost, and D) Specific Identification tracks each item's cost. These methods impact financial reporting and taxes, offering flexibility. FIFO and LIFO reflect physical flow, while Weighted Average evens unit costs. Specific Identification suits unique items.
Inventory cost flow assumptions impact how a company accounts for the cost of goods sold (COGS). A) FIFO (First-In-First-Out) assumes that the oldest inventory items are sold first, aligning with the physical flow of goods.
B) LIFO (Last-In-First-Out) assumes that the newest inventory items are sold first, reflecting recent costs.
C) Weighted Average assumes a constant unit cost for all items, calculated by averaging costs. D) Specific Identification precisely tracks the cost of each individual inventory item sold, suitable for unique or high-value items. Each method affects financial reporting and income taxes, providing flexibility based on business needs and market conditions.
complete question should be :
Which of the following statements accurately describes inventory cost flow assumptions?
A) FIFO assumes that the oldest inventory items are sold first.
B) LIFO assumes that the newest inventory items are sold first.
C) Weighted Average assumes a constant unit cost for all inventory items.
D) Specific Identification precisely tracks the cost of each individual inventory item sold.