During a Year of Falling Prices, Which Cost Flow Assumption

question 21

Multiple Choice

During a year of falling prices, which cost flow assumption would measure the strongest cash flow position?

• A) LIFO
• B) FIFO
• C) Averaging
• D) Net income will remain the same under all methods.

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Definitions:

Inventory Turnover Rate

A measure of how often a company sells and replaces its stock of goods within a period, indicating the efficiency of sales and inventory management.

Net Income

The net income of a business following the deduction of all expenditures and taxes from its total revenue.

Owners' Equity

The residual interest in the assets of a company after deducting liabilities, representing what the owners own outright.

Investment

The process of distributing funds with the goal of earning revenue or gains.