Fifo and LIFOSolutionInventory Inventory is the merchandise

Fifo and LIFO?

Solution

Inventory

Inventory is the merchandise which is purchased for the purpose of sale to customers but that has not yet been sold. Therefore the cost of merchandise which is not yet sold is reported in the current asset as inventory.

Cost of Good Sold

Cost of goods sold is the cost of merchandise which is sold to customers. It is shown in the Income/ Revenue statement.

Relationship between inventory, purchases , and cost of good s sold is as under.

Beginning inventory + Purchase made during period- Cost of goods sold= Ending Inventory

In the given question

Beginning Inventory= $500

Purchases= $1000

Cost of Goods Sold= $1600

If we put the values given in the question in the above formula, we get

$500+$1000-$1600= $100

This means merchandise having value of $ 100 is still in hand and not sold to customers.

There are three methods used to move the cost of merchandise from inventory to cost of goods sold.