Inventory Cost Flow Methods in Perpetual Inventory Systems

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University of Toronto Scarborough
Financial Accounting
Liang Chen

Inventory Cost Flow Methods in Perpetual Inventory Systems All methods of cost flow can be used in the perpetual inventory system FIFO The results under FIFO in a perpetual system are the same as in a periodic system. Regardless of the system, the first costs in are the ones assigned to cost of goods sold Average Cost This is called moving average cost method in perpetual inventory system The average cost is calculated in the same method, however it is calculated for every purchase or sale of merchandise, thus, constantly changing the average LIFO The results under LIFO in a perpetual system differ to the periodic system. Because the perpetual system constantly updates the inventory after each transaction, the cost of LIFO would be based at the exact moment when the inventory was sold, whereas the periodic system would use the cost of LIFO at the very end of the ac
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