BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Closing inventory and profit are higher using FIFO rather than AVCO
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Closing inventory and profit are lower using FIFO rather than AVCO
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Closing inventory is higher and profit lower using FIFO rather than AVCO
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Closing inventory is lower and profit higher using FIFO rather than AVCO
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Detailed explanation-1: -In FIFO method, closing stock is valued at oldest prices of materials.
Detailed explanation-2: -FIFO also has several financial advantages over LIFO. FIFO usually results in higher inventory balances on the balance sheet during inflationary periods. It also results in higher net income as the cost of goods sold is usually lower. While this may be seen as better, it may also result in a higher tax liability.
Detailed explanation-3: -Let’s take a look at the basic differences. FIFO-“First In, First Out”, is when the latest received amount is sold first. AVCO-“weighted average cost method” compute the weighted average cost of the quantity held after each inventory acquisition takes place.
Detailed explanation-4: -The First-in, First-out (FIFO) inventory method results in Cost of goods sold valued at the most recent cost. 9. The matching principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.