LIFO is considered an income statement approach for reporting inventory because it:

Question

Quizplus · Accepted Answer

LIFO assumes that the last items purchased are the first ones sold, which means that the cost of goods sold (COGS) reflects the current costs of inventory. As a result, LIFO better approximates the inventory cost necessary to generate revenue compared to other methods like FIFO or average cost. However, LIFO may not result in a higher amount of net income being reported in all cases. It depends on the specific circumstances and the price trends of inventory over time.

LIFO Is Considered an Income Statement Approach for Reporting Inventory