Determine Cost of Inventory - Financial Accounting

The video tutorial discusses how to calculate inventory costs and the cost of goods sold, emphasizing the importance of understanding all associated costs, including invoice and incidental costs. It introduces the matching principle, which aligns inventory costs with revenue. The tutorial outlines four methods for calculating inventory costs: specific identification, first in, first out (FIFO), last in, first out (LIFO), and weighted average, explaining that three are assumptions while one is factual.

What does the matching principle state regarding inventory costs?

• Inventory costs should be recorded when the inventory is received.

• Inventory costs should be recorded at the end of the fiscal year.

• Inventory costs should be recorded when the inventory is purchased.

• Inventory costs should be recorded against revenue in the period the inventory is sold.

Which of the following is NOT included in the cost of inventory?

• Invoice cost

• Discounts received

• Incidental costs

• Employee salaries

Which inventory cost calculation method is based on factual identification?

• First in, first out (FIFO)

• Last in, first out (LIFO)

• Weighted average

• Specific identification

What is the main characteristic of the weighted average method?

• It assumes the newest inventory is sold first.

• It averages the cost of all inventory items.

• It assumes the oldest inventory is sold first.

• It identifies each inventory item individually.

Which inventory cost calculation method assumes the newest inventory is sold first?

• Weighted average

• Specific identification

• Last in, first out (LIFO)

• First in, first out (FIFO)