Which inventory valuation method sells the oldest items first?

Which inventory valuation method sells the oldest items first?

• A. FIFO (first in first out)
• B. LIFO
• C. Weighted average
• D. Specific identification

Answer: (A)

FIFO sells the oldest items first. This method assumes that the first goods you purchase are the first ones you sell, so the cost of goods sold is based on the oldest inventory costs while the ending inventory reflects the most recent purchases. In contrast, other methods work differently: LIFO assumes the newest items are sold first, a blended cost is used with the weighted average approach, and specific identification matches costs to the exact items sold. Understanding this helps you see why FIFO affects the makeup of cost of goods sold versus ending inventory, especially when prices change over time.

FIFO sells the oldest items first. This method assumes that the first goods you purchase are the first ones you sell, so the cost of goods sold is based on the oldest inventory costs while the ending inventory reflects the most recent purchases. In contrast, other methods work differently: LIFO assumes the newest items are sold first, a blended cost is used with the weighted average approach, and specific identification matches costs to the exact items sold. Understanding this helps you see why FIFO affects the makeup of cost of goods sold versus ending inventory, especially when prices change over time.