Which cost formula provides the better (1) income statement and (2) statement of financial position valuations, respectively?
A)(1)Average and (2)FIFO
B)(1)FIFO and (2)average
C)(1)FIFO and (2)FIFO
D)(1)Average and (2)average

Question

Quizplus · Accepted Answer

FIFO provides the better income statement valuation because it matches the most recent costs with the revenues, resulting in a more accurate measure of current profitability. Average cost provides the better statement of financial position valuation because it results in a more stable inventory value, which is important for creditors and other users of the financial statements.

Which Cost Formula Provides the Better (1) Income Statement and (2)