By charging the oldest costs to the income statement,FIFO automatically includes in income the holding gain on the unit that was sold.

Question

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FIFO (First-In, First-Out) assumes that the goods that are sold are those that were purchased first, meaning that the cost of the goods sold comes from the oldest inventory. This means that any remaining inventory will be comprised of more recent and presumably higher-cost items. Therefore, when lower cost goods are sold, the income statement will reflect a higher profit margin, which includes the holding gain on the units sold.

By Charging the Oldest Costs to the Income Statement,FIFO Automatically