Selling more inventory than was purchased during the current period may often cause old, smaller costs that were carried as part of the company's beginning inventory, to be moved to the income statement and reported as cost of goods sold. This is called:

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This situation is known as LIFO (Last-In, First-Out) liquidation, where the company is selling older inventory that was purchased at a lower cost than current inventory. As a result, the cost of goods sold will include these older, lower-cost items, which can lead to an understatement of the cost of goods sold and overstatement of net income.

Selling More Inventory Than Was Purchased During the Current Period