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Which is best? LIFO, FIFO or Weighted Average

Financial Statements/ LIFO, FIFO and Weighted Average

There are several different methods for measuring inventory cost flow on the financial statements - LIFO, FIFO, Weighted Average (forget physical flow). The purpose of the financial statements is to give investors information about the business, which of the flow methods do you think is the best and why. In other words, what if it the 'rules' allowed only one - which one would that be? And - of course - why ?

Need a brief response (two - three paragraphs).

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If I had to pick, I would pick FIFO because it usually best corresponds with the actual flow of goods. Most businesses don't sell the most recently purchases or produced item (but that is assumed in the LIFO costing method). It is probably still on the shipping dock! What is available for customers to buy is the product that is further down the distribution ...

Solution Summary

Your tutorial is 251 words and chooses FIFO. Several weaknesses of LIFO and average cost are discussed as the reason for selecting FIFO.

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