 LIFO inventory valuation, which stands for last in, first out, results in the most recent purchases being recorded as costs of goods sold. Let's look at an example. Let's assume the following inventory data. March 1st, beginning inventory is 200 units at a cost of $10 each. March 4th, we purchased an additional 300 units at $20 each. March 10th, we sold 400 units at $50 each. Now the $50 is the retail price, not the cost. We need to figure out the cost of goods sold by applying LIFO valuation to our data, and we'll do that shortly. March 20th, we purchased an additional 500 units at $30 each. March 25th, we sold 300 units at a price of $50 each. Again, we need to figure out the cost. Finally, March 30th, we purchased 100 units at $40 each. If you'd like to pause the video at this point and write down those numbers, I would encourage you to do that and then just start it up when you're ready. So with this data and using LIFO, let's record the March 10th and March 25th sales as well as determine the value of ending inventory. Again, this is for a perpetual inventory tracker. Since the company uses the perpetual method of tracking inventory, the dates of the transactions matter. So we need to less them in chronological order. Additionally, the purchases and sales are recorded when they happen. So I like to present the same data, but in a big T account. In fact, everything that I have listed here isn't dependent on the valuation method. The items that are dependent are the ones highlighted on the credit side of the account. Let's figure out what those are. So on March 10th, we sold 400 units at $50 each, which gives us the sales revenue of $20,000. But how much is the cost of goods sold? Well, let's apply LIFO to that to figure it out. We sold 400 units. LIFO means last in, first out. So our most recent units are from March 4th. Now, let me mention something here that's important and sometimes messes some students up. Our most recent purchases from the March 10th sale cannot be the purchases from March 30th. Those didn't exist on March 10th. That's why it's important to pay attention to the dates when using the perpetual method. OK, back to our problem. We sold all 300 units on March 4th, leaving zero. However, that doesn't account for all 400 units. The next most recent items came from beginning inventory. We sold 100 units from here, leaving 100 units in inventory. So we can assume the 400 units sold on March 10th came from 100 units of beginning inventory and 300 units from the March 4th purchase. We total those, and costs of goods sold is $7,000. The next decision that we need to make happens with the sale on March 25th. We sold 300 units. So which 300 units did we sell using LIFO? The most recent purchases are from March 20th. We sold 300 units from here, leaving 200 in inventory. So we can assume that the 300 units sold on March 25th came from the 300 units from the March 20th purchase. So costs of goods sold is $9,000. Of course, revenue comes from the fact that we sold the 300 units at $50 each. So what is the total amount of costs of goods sold and what is the value of our ending inventory? Cost of goods sold is the total of the credit side of the inventory account, which in this case is $16,000. Ending inventory is the remaining amount on the debit side of the inventory account. There are 100 units from beginning inventory with a total cost of $1,000, 200 units from March 20th with a total cost of $6,000, and 100 units from March 30th with a total cost of $4,000. This totals 400 units of inventory at a value of $11,000. Finally, if we were completing a perpetual inventory record, you can see the purchases were entered on the purchase column. The units sold are recorded and notice the total of the costs of goods sold already computed, March 10th $7,000 and March 25th $9,000. Finally, ending inventory is the running total that results in 400 units of inventory with a cost of $11,000.