 LIFO inventory valuation which stands for last in first out results in the most recent purchases being recorded as cost of goods sold and the oldest purchases remaining in any inventory. Recall under the periodic inventory tracking system we don't track the purchase and sale of inventory through the inventory account so the revenue entry is all that is recorded when the sale occurs. Therefore costs of goods sold in ending inventory valuation are determined only at the end of the month. Let's look at an example. Let's assume the following inventory data. March 1st beginning inventory is 200 units with a cost of $10 each. March 4th we purchased an additional 300 units at $20 each. On March 10th we sold 400 units at $50 each. Now that's the retail price not the cost. March 20th we purchased an additional 500 units at $30 each. March 25th we sold 300 units at a price of $50 each. Finally March 30th we purchased 100 units at $40 each. If you want to pause the video at this time to write down those numbers go ahead and then just start it up when you're ready. So with this data and using LIFO let's determine the value of the ending inventory and the amount of costs of goods sold that should be recorded. Since inventory isn't accounted for after each transaction we need to use the costs of goods sold model to determine the value of costs of goods sold and ending inventory. The cost of goods sold model is beginning inventory plus purchases equals goods available for sale. From that we can subtract ending inventory to arrive at costs of goods sold. We could also subtract the unit sold to arrive at the units in ending inventory. This is important to note because sometimes units sold are given and not ending units while other times ending units are given and not the units sold. In real life we know the ending units of inventory because we physically counted them. So we take the data from the problem and put it into the cost of goods sold model. I chose to solve for ending inventory because we were given the units sold. So we have 1100 units available for sale with a total cost of $27,000. We know we sold 700 units so our ending inventory must be 400 units. So let's figure out which 700 units we sold using LIFO. But before we do that there's an important concept we need to be aware of when using the periodic method. We assume that all goods are available for sale. So I know and you know there isn't any way that the March 30th purchases could have been sold on March 10th. But we ignore that fact when using the periodic method. Now back to solving this problem. So I asked the question which 700 units did we sell? Well LIFO stands for last in first out. So we sold all 100 units of the March 30th purchases leaving zero. We sold 500 units of the March 20th purchases leaving zero. We sold 100 units of the March 4th purchases leaving 200 in ending inventory. So we can account for all 700 units and the cost of those is $21,000 which is the 4,000 plus the 15,000 plus 2,000. Let's plug that amount into the cost of goods sold model. Since the cost of goods available for sale is $27,000 we can determine the value of the ending inventory by subtracting the cost of goods sold of $21,000. Therefore ending inventory is $6,000. We could have proved this by using the ending inventory as well. Since 400 units remain in ending inventory and those come from 200 units of beginning inventory and 200 units remaining from the March 4th purchase this gives us a total of $6,000 which matches what we've already calculated.