Question

Which inventory method assumes that the earliest goods purchased or produced are the first to be sold?

• A. FIFO (First-In, First-Out)
• B. LIFO (Last-In, First-Out)
• C. AVG (Average Cost)
• D. STD (Standard Cost)

Hint:

FIFO = Old stock first sell. LIFO = New stock first sell.

Answer 1

The Correct Option is A

Topic: Inventory Valuation Methods
Step 1: Understanding the Question:
The question asks to identify the specific accounting logic where the oldest stock is cleared out before newer stock.
Step 2: Detailed Explanation:
In retail, especially with perishable goods, it is logical to sell the items that arrived first.
FIFO (First-In, First-Out): Assumes the first items put in inventory are the first ones sold.
LIFO (Last-In, First-Out): Assumes the most recent items are sold first (common in non-perishables like coal or stone).
AVG: Uses a weighted average of costs.
Step 3: Final Answer:
The method that assumes earliest goods are sold first is FIFO.