Topic 7 - Accounting for Inventories

Question 1

What are the 4 Costing Methods?

Answer 1

1. Specific Identification Method
2. First In First Out - FIFO
3. Last In First Out - LIFO
4. Weighted Average Method

Question 2

What is the Specific Identification Method?

Answer 2

It is keeping a record of each specific unit in terms of its purchase price and whether or not it was sold during the period.

Question 3

What is FIFO?

Answer 3

The oldest goods on hand are sold first. Therefore, closing inventory is costed at the cost of the most recent purchases.

Question 4

What is LIFO?

Answer 4

The most recent goods purchased are the first to be sold. This means that closing inventory is costed at the cost of the earliest purchases.

Question 5

What is the Weighted Average Method?

Answer 5

It spreads the total cost of goods available for sale equally among all the units. An average cost is determined and used to cost closing inventory and cost of sales.