When inventory costs are rising,FIFO allows managers to manipulate net income by timing the purchases of inventory.

Question

Quizplus · Accepted Answer

FIFO (First-In, First-Out) accounting method records inventory purchases and sales based on the assumption that the oldest items are sold first. The timing of inventory purchases under FIFO does not directly allow managers to manipulate net income, as it consistently uses the oldest costs for cost of goods sold, regardless of when new inventory is purchased. Rising or falling inventory costs affect the valuation of inventory and cost of goods sold, but FIFO's methodology itself does not facilitate direct manipulation of net income through timing of purchases.

When Inventory Costs Are Rising,FIFO Allows Managers to Manipulate Net