The inventory method that results in the highest net income during periods of declining prices is
A)LIFO
B)FIFO
C)Average
D)Specific identification

Question

Quizplus · Accepted Answer

LIFO (Last-In, First-Out) inventory method assumes that the last units purchased or produced are the first ones sold. During periods of declining prices, using LIFO results in a higher cost of goods sold (COGS) and lower ending inventory value, which in turn leads to a higher gross profit and net income. This is because the most recent or higher-priced inventory items that are sold are matched against the lower-priced items remaining in inventory, resulting in a higher COGS and lower taxable income. Hence, LIFO is the best choice for companies during periods of declining prices.

The Inventory Method That Results in the Highest Net Income