Wize University Introduction to Financial Accounting Textbook > Inventory
Last-in, First-out (LIFO)
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Last-in, First-out (LIFO)
The LIFO method of costing inventory assumed that when an item is sold, it is from newest batch on hand.
Characteristics of the LIFO Method
Newest
inventory is sold first.
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Example: Last-in, First-out
The following transactions took place during August 2020, all purchases and sales were on account.
Using LIFO:
- What is the correct amount of cost of goods sold for the month?
- What is the correct amount that should be reported as inventory on August 31st, 2020?
- Prepare the journal entry to record the transaction on August 3rd using the perpetual inventory system.
- Prepare the journal entry to record the transaction on August 4th using the perpetual inventory system.
- Prepare the journal entry to record the transaction on August 8th using the periodic inventory system.
- Prepare the journal entry to record the transaction on August 13th using the periodic inventory system.
Practice: Last-in, First-out (LIFO)
ABC Inc. had the following transactions affecting inventory during 2020, the company uses LIFO and the perpetual inventory system:
All transactions are on account.
In recording the journal entry for the sale on April 14th, what is the correct about that should be debited to cost of goods sold?