The FIFO method leads to a higher balance sheet inventory value but a lower cost of goods sold in the income statement.

Question

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FIFO (first-in, first-out) assumes that the first units of inventory purchased are the first units sold, which leads to a higher cost assigned to the remaining inventory on the balance sheet. This higher balance sheet inventory value results in a lower cost of goods sold reported on the income statement, as the cost of newer inventory is not yet being factored into the cost of goods sold.

The FIFO Method Leads to a Higher Balance Sheet Inventory