GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Average cost
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First-in-first-out
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Last-in-first-out
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Base stock method
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Detailed explanation-1: -If prices are decreasing, a LIFO technique will give you a higher value. The value of the closing inventory in your balance sheet is one of the factors used by financial institutions before approving a loan to a company, so the technique that gives you the highest inventory value will be the best for your company.
Detailed explanation-2: -Pros: FIFO is the most commonly used inventory valuation method. FIFO normally results in higher gross profits because the cost of acquiring inventory typically rises over time. This keeps your COGS lower and creates a healthier income statement.
Detailed explanation-3: -LIFO assumes that the newest goods are sold first so in times of falling prices it will result in the lowest COGS expense and the highest value of ending inventory.