Various methods are used in accounting for inventory in an accounting system. Companies use FIFO, LIFO, Weighted Average and Specific identification.
(1) Compare and contrast Perpetual Inventory and Periodic Inventory systems of determining inventory on hand.
(2) If costs are increasing, which inventory valuation method (FIFO, LIFO, or Average Cost) would yield the highest gross profit? Why?.
(3) If costs are increasing, which inventory valuation method (FIFO, LIFO, or Average Cost) comes closest to matching current costs and revenues on the income statement? Why?.
(4) If costs are increasing, which inventory valuation method (FIFO, LIFO, or Average Cost) comes closest to reflecting ending inventory at current replacement cost on the balance sheet? Why?