Which inventory valuation method most closely matches the actual flow of goods for most businesses?

Question

Quizplus · Accepted Answer

The FIFO method (first-in, first-out) is generally considered to be the most accurate reflection of the actual flow of goods for most businesses, as it assumes that the oldest items purchased are the first to be sold. This is often the case in businesses with perishable goods or products with a short shelf-life, as they want to sell the oldest items first to avoid spoilage or obsolescence. Additionally, the FIFO method typically results in higher valuations of inventory, which can be advantageous for businesses when reporting profits and paying taxes.

Which Inventory Valuation Method Most Closely Matches the Actual Flow