Double Entry Door's suppliers maintained very stable prices for many years, but Minnie has noticed that the cost of doors has been rising steadily for the past few years. She is concerned that, given the company's current accounting methods of basing its cost on the most recent doors purchased, this will result in a much lower net income than in the past. The most likely reason for her concern is that Double Entry has apparently been using

Question

Quizplus · Accepted Answer

The LIFO inventory valuation method uses the cost of the last items bought to determine the cost of goods sold. With FIFO, the cost of goods sold is based on the oldest (first) items in inventory. In a period of rising inventory prices, LIFO would result in a higher cost of goods sold than FIFO. Since cost of goods sold is subtracted from revenue in the determination of net income, LIFO would result in a smaller net income.

Double Entry Door's Suppliers Maintained Very Stable Prices for Many