Slayer CPA
SectionsBlogLog In
Financial Accounting and Reporting/Blueprint/2.C

Inventory

Area 2: Select Balance Sheet Accounts (30-40%)

Your Progress

0 of 51 questions attempted

Topics

  • Cost flow assumptions (FIFO, LIFO, weighted average)
  • Lower of cost or net realizable value

Lessons

  • InventoryFree

Study Frameworks

Inventory: Lower of Cost or Net Realizable Value

Is the inventory's Net Realizable Value (NRV) less than its cost?
Yes
Write down to NRV; recognize loss in COGS
No
Was the inventory previously written down?
Yes
Recovery allowed up to original cost (under ASC 330 for non-LIFO methods); LIFO/retail — no recovery
No
No adjustment needed — carry at cost

Weighted-Average Cost (Inventory)

Total Cost of Goods Available / Total Units Available

COGS (Periodic)

Beginning Inventory + Purchases − Ending Inventory

Gross Profit Method (Ending Inventory)

Ending Inventory = Goods Available for Sale − [Net Sales × (1 − Gross Profit %)]

Estimates ending inventory using historical gross profit percentage applied to sales

Inventory Methods Comparison

MethodCOGS in Rising PricesEnding InventoryTax Effect
FIFOLowest (oldest costs)Highest (newest costs)Highest taxable income
LIFOHighest (newest costs)Lowest (oldest costs)Lowest taxable income
Weighted AverageMiddleMiddleMiddle
Specific IdentificationActual cost of item soldActual cost of item remainingVaries
Practice These Topics(51 questions)