When the prices that a company must pay its vendors are rising, the method of accounting for inventory that normally results in the lowest net income is
A) FIFO
B) LIFO
C) Average cost
D) There is no difference among the three methods.

Question

Quizplus · Accepted Answer

When prices are rising, LIFO (last-in, first-out) accounting results in a lower net income compared to FIFO (first-in, first-out) or average cost accounting methods. This is because LIFO assumes that the most recently purchased inventory is sold first, leading to a higher cost of goods sold and a lower ending inventory value, which in turn decreases the company's reported net income. Therefore, the best choice is B, LIFO.

When the Prices That a Company Must Pay Its Vendors