In a time of rising prices, the inventory valuation method that will report a higher cost of goods sold (COGS) is the Last-In, First-Out (LIFO) method.

Here's why:

1. The LIFO method assumes that the last items added to the inventory are the first ones to be sold.

2. In a period of rising prices, the cost of purchasing inventory would increase over time.

3. Therefore, under the LIFO method, the most recently acquired (and more expensive) items are recorded as sold first.

4. This results in a higher cost of goods sold (COGS) compared to other inventory valuation methods like First-In, First-Out (FIFO) or Average Cost method, which would assume the sale of older (and cheaper) inventory first.

5. Consequently, using LIFO during times of rising prices can lead to lower taxable income (since COGS is subtracted from sales revenue to determine taxable income), and thus lower taxes.

Question

In a time of rising prices, the inventory valuation method that will report a higher cost of goods sold (COGS) is the Last-In, First-Out (LIFO) method.

Here's why:

1. The LIFO method assumes that the last items added to the inventory are the first ones to be sold.

2. In a period of rising prices, the cost of purchasing inventory would increase over time.

3. Therefore, under the LIFO method, the most recently acquired (and more expensive) items are recorded as sold first.

4. This results in a higher cost of goods sold (COGS) compared to other inventory valuation methods like First-In, First-Out (FIFO) or Average Cost method, which would assume the sale of older (and cheaper) inventory first.

5. Consequently, using LIFO during times of rising prices can lead to lower taxable income (since COGS is subtracted from sales revenue to determine taxable income), and thus lower taxes.

Knowee AI · Accepted Answer

In a time of rising prices, the inventory valuation method that will report a higher cost of goods sold (COGS) is the Last-In, First-Out (LIFO) method.

Here's why:

1. The LIFO method assumes that the last items added to the inventory are the first ones to be sold.

2. In a period of rising prices, the cost of purchasing inventory would increase over time.

3. Therefore, under the LIFO method, the most recently acquired (and more expensive) items are recorded as sold first.

4. This results in a higher cost of goods sold (COGS) compared to other inventory valuation methods like First-In, First-Out (FIFO) or Average Cost method, which would assume the sale of older (and cheaper) inventory first.

5. Consequently, using LIFO during times of rising prices can lead to lower taxable income (since COGS is subtracted from sales revenue to determine taxable income), and thus lower taxes.

In a time of rising prices, which inventory valuation method will report higher cost of goods sold?

Question

In a time of rising prices, which inventory valuation method will report higher cost of goods sold?

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