Which statement describes LIFO inventory costing?

Which statement describes LIFO inventory costing?

• A. Oldest inventory is sold first
• B. First in, first out
• C. Most recent acquisitions are sold first
• D. Inventory is valued at cost

Answer: (C)

LIFO describes how costs flow through inventory when sales are recorded. Under this method, the most recently acquired items are the first to be recognised in cost of goods sold, so the ending inventory consists of older, earlier costs. This is why the statement most clearly describes LIFO: the latest acquisitions are sold first. In contrast, FIFO would mean the oldest inventory is sold first, leaving newer costs in ending inventory. Remember, LIFO affects the cost of goods sold and ending inventory values, especially when prices are rising or falling.

LIFO describes how costs flow through inventory when sales are recorded. Under this method, the most recently acquired items are the first to be recognised in cost of goods sold, so the ending inventory consists of older, earlier costs. This is why the statement most clearly describes LIFO: the latest acquisitions are sold first. In contrast, FIFO would mean the oldest inventory is sold first, leaving newer costs in ending inventory. Remember, LIFO affects the cost of goods sold and ending inventory values, especially when prices are rising or falling.