Question

What are the steps to finding out the FIFO and the LIFO and the average cost in Accounting?

Answer 1

FIFO;

As we know that under FIFO method, first purchased inventory is sold first for calculating cost of goods sold, cost of ending inventory. In other words we can say that under FIFO method we have to issue last one inventory first in order to determine the value of ending inventory and value of costs of goods sold.

Followings steps are involved in this method;

1. Under FIFO method first of all you need to see the order of received inventory and beginning inventory.

2. Next you will have to see the order of sold inventory.

3. Then you will have to find out ending inventory after selling inventory in order to first in first out.

4. At last left inventory will be known as ending inventory and sum of sold inventory in order to first in first out will be known as cos of goods sold.

LIFO;

As we know that under LIFO method, latest purchased inventory is sold first for calculating cost of goods sold, cost of ending inventory. In other words we can say that under LIFO method we have to issue newest one inventory first in order to determine the value of ending inventry and value of costs of goods sold.

Followings steps are involved in this method;

1. Under LIFO method first of all you need to see the order of received inventory and beginning inventory.

2. Next you will have to see the order of sold inventory.

3. Then you will have to find out ending inventory after selling inventory in order to last in first out.

4. At last left inventory will be known as ending inventory and sum of sold inventory in order to last in first out will be known as cos of goods sold.

Average Cost;

Under average cost method of inventory, value of ending inventory value of cost of goods sold is calculated on the basis of average cost of goods available for sale.

Followings steps are involved in this method;

1. First of all calculate the number of units available for sale, you will calculate these units on the basis of beginning inventory and total units purchased.

2. Calculate total cost of goods available for sold on the basis of value given of beginning inventory and value of purchased inventory.

3. After dividing total value of units available for sale by total number of units avaialble for sale, you will get average cost per unit.

4. Multiply number of ending units by per unit cost for calculating cost of ending units. And cost of goods sold can be calculated with the help of multiplying number of units sold with per unit price.