Lesson 4: Inventory Methods — the introduction FIFO and LIFO

• What is inventory in a merchandising business?
• How does inventory move through the accounting cycle?
• How does Cost of Goods Sold affect net income?
• Why does the method used to value inventory matter?
• How can inventory valuation influence business strategy?

Inventory
Merchandising Business
Cost of Goods Sold (COGS)
Ending Inventory
Beginning Inventory
Goods Available for Sale
Gross Profit
Net Income
Inflation
Asset
Income Statement
Balance Sheet

HS.CTE.2A – Recall and apply prior knowledge for intended purpose.
HS.CTE.2B – Pose questions and make predictions about problems.
HS.CTE.2C – Apply a solution using evidence and reasoning.

Students analyze numerical relationships, apply proportional reasoning, and evaluate cause-and-effect relationships between variables (cost, revenue, profit), strengthening algebraic reasoning and analytical reading skills tested on the SAT.

Description: This lesson introduces inventory accounting within a merchandising business and establishes the conceptual foundation for FIFO and LIFO. Students explore how inventory valuation affects Cost of Goods Sold, Gross Profit, and Net Income.

Purpose: To transition students from procedural accounting into analytical accounting by demonstrating how inventory valuation choices influence profitability, taxes, financial reporting, and business decision-making

DOK Level Questions

DOK 1
• Define Cost of Goods Sold.
• What financial statement reports Ending Inventory?

DOK 2
• Explain how COGS impacts Gross Profit.
• Describe the relationship between inventory and the balance sheet.

Students connect inventory valuation to real businesses such as retail stores, sneaker resellers, technology companies, and grocery stores.

Students may assume profit is fixed regardless of accounting method.

• Visual modeling of inventory flow
• Step-by-step guided notes
• Real-life pricing examples (gas, groceries, electronics)
• Small-group financial analysis discussion
• One-on-one support
• Google Classroom interactive simulations
• Excel modeling for advanced students
• Spanish vocabulary version for ELL students

• Guided Notes Completion
• Scenario Analysis Worksheet
• Exit Ticket Reflection (“Why is inventory valuation strategic?”)
• Vocabulary Quiz
• Online Quizizz/Kahoot Review
• Informal class discussion participation

Century 21 Accounting General Journal, 11th Edition (print or MindTap)
Class Notes
Guided Notes Template
Scenario Worksheet
Whiteboard for visual modeling
Exit Ticket
Calculator
Optional: Excel model demonstration