The choice of an inventory cost flow assumption can have a dramatic impact on amounts in financial statements.

Question

Quizplus · Accepted Answer

The inventory cost flow assumption affects how costs are allocated to inventory and ultimately affects the cost of goods sold and gross profit, which in turn affects the balance sheet and income statement. Different assumptions, such as FIFO, LIFO, and average cost, can result in significantly different financial statement amounts.

The Choice of an Inventory Cost Flow Assumption Can Have