Which inventory method is better described as having a balance sheet focus and why is it considered as such?

Question

Quizplus · Accepted Answer

FIFO (First-In-First-Out) is the method that better approximates the value of ending inventory from a balance sheet perspective because it assumes that the oldest inventory items are sold first. This means that the cost of goods sold (COGS) is calculated based on more recent, and therefore higher, inventory costs. As a result, the value of ending inventory is more accurately represented as a current cost. This approach is particularly relevant for companies that have a large inventory of goods that may fluctuate in value over time.

Which Inventory Method Is Better Described as Having a Balance