During rising prices, a company using the LIFO method assumes that the sale is from the newest, highest-cost inventory.

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LIFO (Last In, First Out) assumes that the latest or most recent inventory purchased is the first to be sold. During rising prices, the cost of inventory increases, causing the cost of goods sold to be relatively higher under the LIFO method as compared to the FIFO (First In, First Out) method. This, in turn, results in lower profits and lower tax liabilities.

During Rising Prices, a Company Using the LIFO Method Assumes