Fifo under periodic inventory procedure, Accounting Basics

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Q. FIFO under periodic inventory procedure?

The FIFO (first-in, first out) method of inventory costing suppose that the costs of the first goods purchased are those charged to cost of goods sold when the company actually sells goods. This method supposes the first goods purchased are the first goods sold. In some companies the first units in (bought) should be the first units out (sold) to avoid large losses from spoilage. Such items like fruits, fresh dairy products and vegetables should be sold on a FIFO basis. In these cases a supposed first-in, first-out flow corresponds with the actual physical flow of goods.

For the reason that a company using FIFO assumes the older units are sold first and the newer units are still on hand the ending inventory consists of the mainly recent purchases. When use periodic inventory procedure to determine the cost of the ending inventory at the end of the period under FIFO you would begin by listing the cost of the most recent purchase. If the ending inventory encloses more units than obtained in the most recent purchase it as well includes units from the next-to-the-latest purchase at the unit cost incurred etc you would list these units from the latest purchases until that number agrees with the units in the ending inventory.


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