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(a)
Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Inventory cost flow: It refers to the flow (movement) of inventory when it is purchased or sell by the business organization.
The various inventory cost flow methods are:
- First-in, first-out (FIFO)
- Last in, first-out (LIFO)
- Average-cost
FIFO method: In FIFO method, those goods are sold first which are purchased first by the business organization.
To determine: The cost of goods sold under the FIFO method.
(b)
LIFO method: In LIFO method, those goods are sold first which are purchased in last by the business organization
The cost of goods sold under the LIFO method,
(c)
Average-cost method: In average-cost method, the value of inventory is calculated by the average of cost of goods sold which are available for the sale purpose for that period.
To determine: The cost of goods sold under average-cost method.
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Chapter 6 Solutions
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