Asked by hector batalla on Jul 14, 2024
Verified
During periods of rising inventory costs,LIFO cost of goods sold is understated because of the inventory holding gains that have occurred during the period.
LIFO
Last In, First Out, an inventory valuation method where the most recently produced items are the first to be expensed.
Inventory Holding Gains
Inventory holding gains are increases in the value of inventory a company holds due to price inflation or increased demand, not yet realized through sales.
- Appreciate the impact of utilizing Last-In, First-Out and First-In, First-Out accounting methods on the management of inventory and the preparation of financial statements.
Verified Answer
NM
Nesha MarieJul 18, 2024
Final Answer :
False
Explanation :
During periods of rising inventory costs, LIFO (Last In, First Out) cost of goods sold is overstated, not understated, because the most recently acquired (and thus more expensive) inventory items are sold first, reflecting the higher current market costs in the cost of goods sold.
Learning Objectives
- Appreciate the impact of utilizing Last-In, First-Out and First-In, First-Out accounting methods on the management of inventory and the preparation of financial statements.
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