Question

Both __________-__________, __________-__________ and __________-__________, __________-__________ methods of inventory valuation are assumptions as to the flow of costs.

Answer 1

Answer: First-In, First-out; Last-in, First-out

Explanation:

First-In, First-out(FIFO) and Last-in, First-out(LIFO) are both methods of inventory valuation that are used to assume the cost of inventory such that Cost of Goods sold can be calculated.

FIFO works by assuming that the oldest inventory purchased by the company is the one that was sold first while LIFO works by assuming that the newest inventory is sold first.

Using FIFO therefore will result in lower inventory costs because it is using old prices as opposed to LIFO which would reflect the increase in inventory prices as it is using recent prices.