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In a period of rising prices, is the lifo method or the fifo method likely to...

In a period of rising prices, is the lifo method or the fifo method likely to yield the larger inventory cost?

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Answer #1

LIFO method assumes that the inventory purchased later is sold first while FIFO method assumes that the inventory purchased first is sold first.

In the period of rising prices i.e. when prices are rising over time, inventory purchased later will be costlier than the inventory purchased earlier. Hence, LIFO method will result in higher cost of goods sold and lower cost of ending inventory while FIFO method will result in lower cost of goods sold and higher cost of ending inventory.

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