In: Accounting
When using FIFO, a company
a) Applies the costs of the first items purchased to ending inventory, which means the costs of the last items purchased go to Cost of Goods Sold.
b) None of these answers is correct.
c) Applies the costs of the first items purchased to Cost of Goods Available for Sale, which means the costs of the last items purchased go to Cost of Goods Sold.
d) Applies the costs of the first items purchased to Cost of Goods Sold, which leaves the costs of the last items purchased in Ending Inventory.
Solution: The Answer is D) Applies the costs of the first items purchased to Cost of Goods Sold, which leaves the costs of the last items purchased in Ending Inventory.
Explanation:
1) As per FIFO, the goods purchased earlier will be first used/sold. Which means if we sold goods, the costs of first items purchased will go to cost of goods sold and remaining purchases such as last items will be added in ending inventory [if any].
2) So, Option D is Correct.
3) Option A is not correct because it is vice versa to what actually happens.
4) Option B is not correct because Option D is Answer
5) Option C is not correct because cost of first items will be added to cost of goods sold rather than cost of goods available for sale.