Exercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1 [The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: January 20 April 21 July 25 September 19 Purchased 370 units @ $12 = Purchased 140 units @ $13 = Purchased 220 units @ $15 = Purchased 100 units @ $16 = During the year, The Shirt Shop sold 690 T-shirts for $21 each. Exercise 5-5 (Algo) Part b b. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions. Gross margin FIFO LIFO $ 4,440 1,820 3,300 1,600 Difference

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.