Question

The lifo cost flow assumption assumes that the cost of items purchased ______ are the costs that will be transferred first to cost of goods sold on the ______, ______.

A. latest/income statement
B. earliest/balance sheet

Answer 1

The lifo cost flow assumption assumes that the cost of items purchased earliest are the costs that will be transferred first to cost of goods sold on the income statement.

Step-by-step explanation:

The LIFO (Last In, First Out) cost flow assumption in accounting implies that the most recently acquired or produced items are the first to be recognized as the cost of goods sold (COGS) when reporting financial results on the income statement. This means that the costs associated with the earliest purchases (items acquired or produced first) are considered as the costs that remain in inventory on the balance sheet.

So, option B is correct. The costs of items purchased earliest are the ones transferred first to the cost of goods sold on the income statement. The balance sheet reflects the remaining costs associated with the latest purchases. This method is suitable for businesses where the most recent inventory items are likely to be sold first.