Question

Which inventory method is better described as having an income-statement focus and why is it considered as such?

Answer 1

The inventory method which is better described as having an income-statement focus is "LIFO" because it more accurately approximates the inventory cost required to produce revenue.

What is Last In, First Out (LIFO)?

Last in, first out (LIFO) is an inventory accounting approach that registers the most recently manufactured products as sold first.

The cost of the latest recent product acquired (or created) is the first to be billed as price of goods sold (COGS) under LIFO, which means that the reduced price of older products is reported as inventory.

Some key features regarding the LIFO are-

• Last in, first out (LIFO) is a system of inventory accounting.
• All costs of the most recent models bought (or produced) will be the first to be expensed under LIFO.
• Only in the United States is LIFO employed, and it is governed by generally accepted accounting rules (GAAP).
• Other inventory accounting methods are the first one in, first out (FIFO) which is also a average cost method.
• When prices are rising, using LIFO reduces net revenue but is tax favorable.

To know more about the LIFO, here

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