What are the primary methods of accounting for inventory?

The primary methods of accounting for inventory are FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and the weighted average cost method. Each of these approaches provides a distinct way of calculating the cost of inventory sold and the value of remaining inventory on hand.

FIFO assumes that the oldest inventory items are sold first. As a result, the ending inventory reflects the more recent costs, which can be advantageous in times of rising prices because it results in lower cost of goods sold (COGS) and higher net income.

LIFO, on the other hand, assumes that the most recently acquired items are sold first. This method can lead to tax advantages during periods of inflation, as it results in higher COGS and potentially lower taxable income, but it may not accurately represent the flow of goods for many businesses.

The weighted average cost method calculates the cost of goods sold and ending inventory by averaging the costs of all inventory items available for sale during the period. This smooths out price fluctuations over time and provides an effective way to gauge inventory cost without responding to each individual purchase.

The other response choices present incorrect combinations or alternatives that do not encompass the primary approaches and recognized terminology in inventory accounting. Therefore, the first choice accurately reflects the