Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for net income. Assume the cost of inventory is rising.

Question

Quizplus · Accepted Answer

The three major costing methods are FIFO, LIFO, and average cost. As the cost of inventory is rising, FIFO will result in the highest net income, LIFO will result in the lowest net income, and average cost will result in net income somewhere between the two. This is because FIFO assumes that older, cheaper inventory is sold first, resulting in a lower cost of goods sold and higher net income. LIFO assumes that newer, more expensive inventory is sold first, resulting in a higher cost of goods sold and lower net income. Average cost averages the cost of all inventory purchased, resulting in an intermediate cost of goods sold and net income.

Given the Same Purchase and Sales Data, the Three Major