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The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
FIFO
lifo
In a period of rising prices, your most recently purchased inventory would have the highest value. Therefore, using LIFO would result in a higher Cost of Goods Sold, a lower Net Income and a lower income tax liability.
The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
LIFO method
The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
FIFO
FIFO
lifo
The GAAP method for obsolete or slow moving inventory is to account for all inventory using either market value or cost method. The method which results in the lower amount is the one that is used.
In a period of rising prices, your most recently purchased inventory would have the highest value. Therefore, using LIFO would result in a higher Cost of Goods Sold, a lower Net Income and a lower income tax liability.
The method of costing that will yield the highest net income is FIFO. FIFO stands for first in, first out.
Lifo (Last in first out) method will produce highest cost of goods sold because inventory with higher value will be charged first as it arrived in last.
Assuming we are talking about a business, one way is to reduce operating expenses in conjunction with changing the accounting method for cost of goods sold (COGS). Many companies use the FIFO method for calculating COGS. The FIFO method uses the highest costs for the goods and higher COGS leads to lower net income. Switching to the LIFO inventory method reduces COGS and increases net income.
Periodic inventory method calculate ending stock at the end of the accounting period, which could be Month to Date or Year to Date, while Perpetual inventory system calculates the ending stock on a continuous basis after each transaction (Purchase or Sell). Within Retail industry, periodic inventory method used for inventory valuation at the stores, whereas distributer like SuperValu (in US) follows perpetual inventory method to track inventory in their distribution centers. As a best practice, some of the retail companies are using perpetual accounting method to track inventory available in warehourses and distribution centers. In an idealistic world, perpetual inventory method can provide the true and real time inventory information, however due to complexities in consolidating all the purchases, sales, shrinkages and other market factors, it is advisable for retail companies to follow periodic accounting method to analyze and review the results before presenting the inventory valuation results to internal and external agencies like Shareholders, Income Tax Authorities, et el.
Hi - in periods of rising prices, the FIFO (fist in, first out) will give the highest ending inventory. The other two options (LIFO last in first out) will give the lowest ending inventory and the average method will give between the two. Hope this helps!