In a period of rising prices which inventory method generally provides the greatest amount of net income?
A) Average-cost.
B) FIFO.
C) LISH.
D) Cannot be determined.

Question

Quizplus · Accepted Answer

In a period of rising prices, FIFO (First In, First Out) inventory method assumes that the oldest items purchased are sold first. Since the older items are purchased at lower costs, this results in higher reported net income as compared to average-cost method, which considers the average cost of all items in inventory, or LISH (Last In, Still Here) method, which assumes that the newest items are still in inventory. Therefore, FIFO generally provides the greatest amount of net income in a period of rising prices.

In a Period of Rising Prices Which Inventory Method Generally