Assuming rising prices, which statement is correct?
A) FIFO reports a lower value for cost of sales than other methods.
B) FIFO reports a lower profit than other methods.
C) FIFO reports a lower value for closing inventory than other methods.
D) With the FIFO assumption, assuming prices are rising, it is not possible to calculate whether cost of sales/inventory is lower or higher than it would be if other assumptions about inventory valuation were made.

Question

Quizplus · Accepted Answer

In a period of rising prices, the FIFO (First In, First Out) method reports a lower cost of sales because it assigns the cost of the oldest inventory items to the cost of goods sold. This means that the cost of sales reflects lower historical prices rather than the higher recent prices. Consequently, FIFO typically results in a higher reported profit and a higher value of closing inventory compared to methods like LIFO (Last In, First Out), where the cost of sales reflects more recent and higher prices.

Assuming Rising Prices, Which Statement Is Correct