One advantage of LIFO over FIFO under normal conditions is that:
A)it reports higher retained earnings.
B)it results in higher cash flows.
C)it results in higher current ratios.
D)it results in higher gross margins.

Question

Quizplus · Accepted Answer

Under normal conditions, where prices are rising, LIFO (Last In, First Out) results in higher cost of goods sold because the most recently acquired inventory, which is more expensive, is sold first. This reduces reported net income and, consequently, taxes. The reduction in taxes increases cash flow, making B the correct choice.

One Advantage of LIFO Over FIFO Under Normal Conditions Is