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Assume you are trying to explain the different methods to value inventory to a family member...

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Accounting

Assume you are trying to explain the different methods to valueinventory to a family member that is self-employed and knowsnothing about accounting.

Her comment to you is: "The cost of inventory can only be onenumber. How can you suggest it can be one of 4 different numbers.Sounds like you are cooking the books to me."

Please explain Why in accounting, there aredifferent methods to value inventory.

Answer & Explanation Solved by verified expert
4.0 Ratings (603 Votes)
For one accounting principles across the globe are quite varied Businesses registered in the United States follow the Generally Accepted Accounting Principles GAAP while those in most other countries follow the International Financial Reporting Standards or IFRS for short There are three most common methods that retailers use FirstInFirstOut FIFO LastInFirstOut LIFO Weighted Average Cost WAC FirstInFirstOutMethodFIFO In this method you assume that the first products to enter the inventory are also the first ones to be sold You always sell your oldest inventory first The obvious benefit of this method is that it accurately reflects how    See Answer
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