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Which method is often preferred for financial reporting due to its alignment wit

Practice Questions

Q1
Which method is often preferred for financial reporting due to its alignment with the actual flow of goods?
  1. FIFO
  2. LIFO
  3. Weighted Average
  4. Specific Identification

Questions & Step-by-Step Solutions

Which method is often preferred for financial reporting due to its alignment with the actual flow of goods?
  • Step 1: Understand that businesses keep track of their inventory, which is the goods they sell.
  • Step 2: Learn about different methods used to value inventory, such as FIFO and LIFO.
  • Step 3: Know that FIFO stands for 'First In, First Out'. This means the first items bought are the first ones sold.
  • Step 4: Recognize that FIFO matches how many businesses actually sell their products, as older stock is usually sold first.
  • Step 5: Understand that because FIFO reflects the real flow of goods, it is often preferred for financial reporting.
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