The three methods of periodic inventory are:
1. FIFO (First In, First Out)
Under FIFO, the oldest inventory items are considered sold first. In a periodic inventory system, this method calculates COGS and ending inventory based on the assumption that the earliest purchases are the first to be sold, which affects financial reporting and tax calculations.
2. LIFO (Last In, First Out)
With LIFO, the most recent inventory items are sold first. This method calculates COGS and ending inventory, assuming the latest purchases are the first to be sold. It can impact financial results differently from FIFO, especially during rising prices.
3. Weighted Average Cost
This method calculates COGS and ending inventory based on the average cost of all inventory items available for sale during the period. The average cost is computed by dividing the total cost of goods for sale by the total number of units available.