Wize University Introduction to Financial Accounting Textbook > Inventory
First-in, First-out (FIFO)
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First-in, First-out (FIFO)
The FIFO method of costing inventory assumed that when an item is sold, it is from oldest batch on hand.
Characteristics of the FIFO Method
- Inventory is sold in thesame orderit was purchased.
- More useful when there are significant changes in suppliers' price.
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Example: First-in, First-out (FIFO)
The following transactions took place during August 2020, all purchases and sales were on account.
Using FIFO:
- 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: FIFO
ABC Inc. had the following transactions affecting inventory during 2020, the company uses FIFO 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 amount that should be debited to cost of goods sold?