Which inventory method typically most closely matches the actual flow of inventory being sold?

• A. Specific Identification Method
• B. First-In, First-Out (FIFO) Method
• C. Weighted Average Cost Method
• D. Last-In, First-Out (LIFO) Method

Answer: (A)

Verified step by step guidance

1. Understand the concept of inventory flow: Inventory flow refers to the order in which goods are sold or used. Different methods simulate this flow to calculate the cost of goods sold and ending inventory.
2. Learn about the Specific Identification Method: This method tracks each individual item of inventory and matches its cost to the actual item sold. It is most accurate when inventory items are unique or easily identifiable, such as cars or jewelry.
3. Understand the First-In, First-Out (FIFO) Method: FIFO assumes that the oldest inventory items are sold first. This method often aligns with the physical flow of goods, especially for perishable items like food or medicine.
4. Explore the Weighted Average Cost Method: This method calculates the average cost of all inventory items and assigns this cost to items sold. It is useful when inventory items are indistinguishable or when prices fluctuate frequently.
5. Learn about the Last-In, First-Out (LIFO) Method: LIFO assumes that the newest inventory items are sold first. This method is less likely to match the actual physical flow of goods but can be beneficial for tax purposes in certain situations.