medium · Investment Banking accounting
If a company uses LIFO instead of FIFO for inventory accounting during a period of rising prices, how will its financial statements differ?
- There is no difference in Net Income, since inventory is an asset, not an expense line.
- FIFO will result in higher cash taxes because it reports lower COGS and higher taxable profit.
- LIFO will result in a higher Inventory balance because the newest, most expensive units are kept in stock.
- LIFO will result in higher COGS, lower Net Income, and lower ending Inventory on the Balance Sheet.
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