Question

Which of the following inventory methods provides: Outdated values for ending inventory on the balance sheet A better matching of current costs with sales revenue on the income statement?

Answer 1

Answer:

LIFO method

Explanation:

Using Last is first out method means we are selling the current products.

For example i purchased the machine in 2017 at $5000

I purchased the same machine in 2018 at $6000

According to the LIFO, if i sell the machine i would record the recent cost of the machine which is $6000, not $5000

So, It would better match with my revenue in income statement as i am stating the current cost of product in income statement.

But the problem rise in balance sheet, because the cost of unsold machine would go into the balance sheet.

The cost of machine in the balance is $5000. It is the outdated cost.