Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement?

1) The cost flow method which would result in the highest inventory amount for the balance sheet is the FIFO method because in this method the inventory which is bought first is expensed first as cost of goods sold and the inventory bought later is still considered as part of the inventory, because prices increase over time, and inventory which is bought later is more expensive, using the FIFO method would result in the highest amount of inventory because the inventory purchased later would be more expensive.

2) The cost flow method which would result in the highest cost of goods sold would be the LIFO method because in this method the inventory which is bought the last is expensed first as cost of goods and sold and because inventory bought later is more expensive, by using this method the cost of goods sold will have a higher value.

Tundexi Tundexi · Answer 2 · 2022-03-24T12:11:17+01:00

The FIFO method is the cost flow method that results in the highest inventory amount for the balance sheet and the LIFO method is the cost flow method that results in the highest cost of goods sold for the income statement.

What is the FIFO method?

This results in the highest inventory amount for the balance sheet because the method allows the inventory that is bought first is expensed first as cost of goods sold and the inventory bought later is still considered as part of the inventory.

What is the LIFO method?

This results in highest cost of goods sold the because in this method the inventory which is bought the last is expensed first as cost of goods and sold and because inventory bought later is more expensive.