Using FIFO during a period of inflation would result in net income being overstated relative to the LIFO method.

Question

Quizplus · Accepted Answer

During periods of inflation, the cost of goods sold (COGS) under FIFO will be lower as the older, cheaper inventory is sold first. This results in a higher gross profit and higher net income compared to the COGS calculation under LIFO where the newer, more expensive inventory is sold first. Therefore, using FIFO during a period of inflation would result in net income being overstated relative to the LIFO method.

Using FIFO During a Period of Inflation Would Result in Net