During Times of Inflation, Which of These Inventory Accounting Methods

question 11

Multiple Choice

During times of inflation, which of these inventory accounting methods is best for cash flow?

• A) LIFO, because the most expensive goods are recorded as being sold first, resulting in a higher cost of goods sold and a lower reported net income.
• B) Specific identification, because it correctly identifies the actual item sold and so the actual cost is recorded on the income statement.
• C) Weighted average, because it smoothes the reported cost of goods sold over time.
• D) It doesn't matter which you use since cash flow is unaffected by the choice of inventory identification method.
• E) FIFO, because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income.

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Definitions:

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