The longer a firm uses LIFO, the greater will be the difference between inventories based on LIFO and FIFO cost-flow assumptions.

Question

Quizplus · Accepted Answer

LIFO assumes that the most recent inventory purchases are the first ones sold, while FIFO assumes that the oldest inventory is sold first. As time passes, inventory costs tend to increase, resulting in a larger discrepancy between LIFO and FIFO inventory valuations. Thus, the longer a firm uses LIFO, the greater the difference between inventories based on LIFO and FIFO cost-flow assumptions.

The Longer a Firm Uses LIFO, the Greater Will Be